Determinants Of Bank Profitability Research Articles

Determinant factors of banking profitability: an application of quantile regression for panel data

This study examines the determinants of bank profitability using a quantile regression approach, offering insights into factors affecting banks across different percentiles of profitability. Utilizing a comprehensive database from Orbis covering 1200 top-market institutions across 101 countries, the research uniquely employs dynamic panel quantile regression while addressing sample survival bias. Our findings highlight that bank size and capital adequacy negatively impact profitability, whereas market value exerts a positive influence on higher profitability banks. Credit risk affects profitability differently across levels of profitability, and inflation rate shows significance only for higher profitability banks. The study contributes to the existing literature by offering valuable insights into the factors determining bank profitability and how they behave at different percentiles in the sample, suggesting the importance of bank efficiency and competition in promoting economic growth.

Determinants of Bank Profitability—Do Institutions, Globalization, and Global Uncertainty Matter for Banks in Island Economies? The Case of Fiji

The objective of this study is to examine the influences of institutions, globalization, and world uncertainty on bank profitability in small developing economies. Consequently, we emphasize the significance of both bank-specific and other external factors influencing bank profitability. The empirical estimation is based on seven banks in Fiji—a small island economy—over the period 2000–2021. Together with bank-specific and macro factors, we account for institutions, globalization, and world uncertainty in analyzing the determinants of bank profitability. The study uses the fixed-effect estimation method. From the results, we observe that bank-specific variables, like the net interest margin, non-interest income, bank size, and capital adequacy ratio, are positively associated with bank profitability. Non-performing loans and credit risk are negatively associated with bank profitability. Macro variables, such as real GDP growth and remittances, have positive effects on bank profitability. Institutional factors, such as government effectiveness and voice and accountability, are positively associated with bank profitability. Regarding globalization, we find that it supports bank profitability. Global uncertainty and the Global Financial Crisis (2007–2008) are positively associated with profitability, whereas the global pandemic (COVID-19) is negatively associated. This study underscores the need to analyze the bank performance with factors beyond those reported in financial statements to derive a comprehensive understanding and appreciation of the complex nature of banking operations.

Analysis of public sector banks on the basis of equity research, determinants of banks profitability and nonperforming assets

Analysis of public sector banks on the basis of equity research, determinants of banks profitability and nonperforming assets

What Are the Drivers of Bank Profitability in the World? A Critical Review of the Empirical Literature with the Layout of a Blueprint Model

ABSTRACT Despite the existence of an extensive literature on determinants of bank profitability, there exists no paper which comprehensively weaves through this literature. We humbly undertake such a review by painstakingly discussing all the potential proxies to end up with a holistic model. We keep abreast of the evolving dynamics by proposing two new metrics, namely aging population and digitization to cope with the detrimental sequels of COVID-19. Our full-fledged model consists of bank-specific, macroeconomic-specific, crisis dummies and interacting variables. Operational risk is found to be an area that will need to be further developed in the literature. Our proposed model can be applied to a specific country or a group of countries with researchers being able to flexibly tweak our blueprint model to suit their own specific applications.

The Effect of Corporate Social Responsibility as a Moderating Variable on Determinants of Banking Profitability in Indonesia

This study examined the effect of Corporate Social Responsibility (CSR) as a moderating variable on determinants of a bank’s profitability listed in the Indonesia Stock Exchange (IDX). This study used secondary data from banking annual reports listed in IDX during 2018-2021, with a total of 100 data from 25 banking companies that met the purposive sampling criteria. The data were analysed using moderated regression analysis with STATA software. This study found that simultaneously, Non-performing Loan (NPL), Good Corporate Governance (GCG), Third Party Funds (TPF), and Cost Efficiency have a significant impact on profitability. While individually, GCG has a significant negative effect, NPL has an insignificant negative effect, Third Party Funds has a significant positive effect, and Cost Efficiency has a significant negative effect on profitability. Furthermore, this study found that CSR has a positive moderating effect on the relationship between TPF and profitability, but CSR has a negative moderating effect on the relationship between Cost Efficiency and profitability. On the other hand, CSR was unable to moderate the relationship of NPL and GCG to profitability. This study contributes to the literature by suggesting the implementation of CSR not only as a compliance to regulation but also as a strategy to increase banking financial performance.

Profitability of Commercial Banks in Portugal and Spain: A Panel Data Analysis Model

The Portuguese and Spanish banking system, in the framework of the economic and financial crisis suffered a significant reduction in the profitability of its banking business. Taking into consideration the problem of profitability in the banking sector at a global level, some studies have been increasingly highlighted both in academia and in the financial market. Thus, this paper aims to analyze the determinants of banking profitability of banks operating in two different financial systems, Portugal and Spain, for the periods from 2014 to 2019. To obtain the results, we used a panel data analysis model that combines cross-section (banks) and time-series (years) data, obtaining a strongly balanced panel. Multiple linear regression models were then used and it was possible to identify credit risk, solvency and operational efficiency as the main factors explaining bank profitability. Finally, the results show that the high credit risk and operational efficiency indicators of these banks have a negative significant influence on their profitability. In turn, more robust solvency indicators have a positive significant dominant on bank´s performance.

A Systematic Review of Fintech and Banking Profitability

Financial technology (Fintech), characterized as technology-driven financial innovation, has catalyzed significant economic growth across various nations. The Fintech sector has experienced remarkable expansion, boasting vast user numbers. While regions like the United States and China have seen accelerated Fintech development, other areas like Western Europe, Eastern Asia, and the Middle East continue their evolutionary journey with this technology. Our research offers a systematic review of contemporary literature, probing the crucial Fintech metrics affecting bank profitability and identifying the primary factors influencing these profits. This review introduces a holistic methodology for quantitatively assessing the evolving Fintech measures and their interplay with determinants of bank profitability. According to the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) guidelines, our study evaluates 28 articles from Web of Science and Scopus databases from August 2019 to August 2023. Findings delineate two principal themes: Fintech measures at both bank and country levels and determinants of profitability, encompassing bank-specific and country-specific variables. We utilize the Theories, Constructs, Contexts, and Methods framework to chart the course for future research. Our insights bear significance for theoretical progression and practical implementation, offering academics, banking professionals, and policymakers a nuanced comprehension of the nexus between Fintech and bank profitability.

Bank Profitability Determinants in Africa: A Review of Literature

Bank Profitability Determinants in Africa: A Review of Literature

Determinants of bank profitability: Empirical evidence from Republic of Indonesia state-owned banks

Determinants of bank profitability: Empirical evidence from Republic of Indonesia state-owned banks

Major Determinants of Bank Profitability in India: A Machine Learning Approach

From reforms and fin-tech revolutions to macro-economic shocks, the Indian banking sector has witnessed rapid changes over the last two decades, which has significant implications for banks’ profitability. Viewing bank profitability from three different dimensions, Net Interest Margins (NIM), Return on Assets (RoA) and Return on Equity (RoE), this study has explored the key determinants with the help of machine learning algorithms. It has used a pooled data set of domestic and commercial banks covering 2005–2021. As a dependent variable, profitability by each measure (NIM, RoA and RoE) is reclassified into three categories, above average, average and below average, based on their quartiles. Twenty-one explanatory variables comprising bank-specific, macroeconomic and policy variables are chosen after due validation using feature selection methodology and multicollinearity check. The random forest (RF) classification algorithm is executed using the CARET package in R. The results obtained from feature selection are corroborated with the RF classification findings. The results are robust and give clear-cut visibility of unique and common factors influencing three profitability measures at varying levels. The classification estimates suggest that the bank-specific variables are major determinants of NIM, while macroeconomic and policy variables are the key determinants of RoA and RoE. Further, the results also suggest that the ratio of non-performing assets to total assets and business per employee are two such bank-specific determinants that play an important role in all three dimensions of profitability. Thus, recapitalization and automation will play an important role in bank profitability.

Determinants of bank profitability in Thailand by Generalized method of moments estimation

This research aimed to estimate the determinants of bank profitability of banks registered in Thailand by using the System GMM Estimator method. Bank level data from 2010-2020. Profitability is measured by three ratios: Return on Assets. Return on Equity and Net Interest Income Margin The determinants of a bank's profitability are bank-specific. Banking Industry Specific Factors and Economic Factors. The results showed increasing asset size results in lower profitability for banks, asset quality and operating costs negatively affect profitability. On the other hand, capital adequacy, inflation, and gross domestic product help boost profits for banks.

ANALYSIS OF THE MACRO AND MICRO DETERMINANTS OF PROFITABILITY OF DEPOSIT MONEY BANKS IN NIGERIA

The study examines the determinants of deposit money banks (DMBs) profitability in Nigeria between the periods of 2001-2017. The determinants (internal and external) are Nonperforming Loans (NPLs), Capital Adequacy (CA), Inflation Rate (INFLR), Interest Rate (INTR) and Gross Domestic Product (GDP)) while profitability was proxied with Return on Asset (ROA). The study made used of secondary data that which was sourced from the CBN Statistical Bulletin, CBN Bank Supervisory Annual Report and NDIC Annual Reports. Analysis employed descriptive statistics and correlation matrix. The Multiple Regression Model with SPSS 23 was used to determine if the independent factors and dependent variable have a significant relationship. The findings suggest that NPLs, CA and GDP have significant influence on ROA except NFLR and INTR that is insignificant. Finally, the study concluded that NPLs, CA and GDP are determinants of banks profitability in Nigeria.
 Keywords: Profitability, Capital Adequacy, Interest Rate, Inflation Rate and Return on Asset.

Determinants of Bank Profitability in the Context of Financial Liberalization: Evidence from Morocco

This article aims, in the context of financial liberalization, to examine the impact of several internal and external factors in relation to the profitability of banks listed on the Moroccan stock exchange. The study uses the panel data method on a sample of the six banks with the largest market shares over the 2010–2019 period to investigate the influence of ownership structure, bank governance, capital structure, prudential regulation, and also a macroeconomic variation on bank profitability. Accordingly, the empirical results indicate a negative relationship between concentration, foreign ownership, and bank profitability. Further, high capital structure ratios, especially solvency, liquidity, and capitalization ratios appear to have an undesirable effect on the performance of Moroccan banks. In contrast, the impact of domestic institutional ownership is positive, implying that profitability is more favored by domestic ownership than by foreign ownership. Our findings also highlight the importance of independent directors and board size. Therefore, liberalizing ownership and opening up the board to the expertise of outside directors is essential for the banking sector’s development. In terms of policy implications, central banks and regulators need to ensure that banks rigorously adhere to specified leverage and fixed capital adequacy ratios while ensuring optimal liberalization for bank performance.

Impact of Macroeconomic Factors on Financial Performance of Commercial Banks in Indonesia

This study investigated the impact of macroeconomic factors on the financial performance of commercial banks in Indonesia. By analyzing a sample of Indonesian banks over a specified period, the research examines the relationships between bank profitability and key macroeconomic variables, such as interest rates, inflation, exchange rates, and economic growth. Employing literature review methodology, the study aimed to shed light on how these macroeconomic factors influence banks' financial performance and assess the implications for risk management, regulatory policies, and strategic decision-making. The study found that the findings of various empirical studies on the impact of macroeconomic factors on the financial performance of commercial banks highlight several key macroeconomic factors that significantly influence bank profitability and other financial performance indicators. These factors include interest rates, inflation, exchange rates, economic growth, and market competition. While the specific findings and magnitudes of the impacts may vary across different countries and regions, some common patterns and trends can be observed. Interest rates have been identified as a critical determinant of bank profitability. Studies have found that higher interest rates can negatively affect bank profitability, as they increase the cost of borrowing for banks, subsequently affecting their lending activities and overall profits. The study concludes that while the specific relationships and magnitudes of these impacts may vary across different countries and regions, understanding these interactions is essential for banks, regulators, and policymakers to make informed decisions and adopt effective strategies. Thus, commercial banks in Indonesia should closely monitor and manage their exposure to macroeconomic factors, such as interest rates, inflation, exchange rates, and economic growth, to maintain and improve their financial performance. Keywords: Macroeconomic factors interest rates, inflation, exchange rates, and economic growth

Green Loans in Bank Portfolio: Financial and Marketing Implications

Banks represent important subjects in business, with dominant positions in the financial system in the world. Banks developed various financial products and services that can cover most market needs. As a result of adequate portfolio diversifications, banks recorded positive profitability rates. In addition to being adjusted to competition, banks should also focus on the environment. Therefore, banks have recognized an opportunity to offer green products and services and support environmentally-friendly initiatives and projects. The aim of this paper is to identify whether crucial determinants of bank profitability are moderated by the presence of green loans in the bank portfolio. For this purpose, a panel fixed-effects approach was applied to data from the Republic of Serbia (2014–2021). The obtained results indicate that the presence of green loans in a bank’s portfolio moderates the influences of a bank’s liquidity on the bank’s profitability measured by return on assets (ROA) and return on equity (ROE). The contribution of the conducted research is that it is, according to the authors’ knowledge, the first measurement and estimation of the moderating effects of green loans’ presence in banks’ portfolios on their profitability. In addition to financial, marketing implications were considered.

IMPACT OF LOAN TO DEPOSIT RATIO ON THE PERFORMANCE OF COMMERCIAL BANKS IN UZBEKISTAN

The health of financial system has important role in the country as its failure can disrupt economic development of the country. Recent transformations and reforms in the economic policies of the Republic of Uzbekistan have led to significant changes in the banking sector. Studying the key factors which contribute to the profitability of commercial banks in Uzbekistan is becoming increasingly important. this research paper examines the main determinants of banking profitability in the Republic of Uzbekistan. Panel data for the period between 2017 to 2021 have been employed on 32 commercial banks of Uzbekistan. Empirical conclusions have shown that the profit of the bank is largely determined by specific factors affecting its activities. The regression results have shown that government ownership and operating costs have negative and statistically significant relationship with the profitability of a bank. Loan to deposit ratio (LDR) has significant positive impact on return on equity (ROE).

Determinants of bank profitability in Georgian banking sector

This study examines the impact of bank-specific and macroeconomic determinants on the profitability of commercial banks in Georgia, where banks tend to be the largest part of the financial system, with free market systems and liberalization policies similar to those in other transition economies, using panel data analysis and random forest method (RVI) is implemented as a robustness check. The profitability indicators return on asset (ROA), return on equity (ROE), and net interest margin (NIM), all of which have been extensively utilized as indicators of profitability in previous research, were employed. The research indicates that the three most significant bank-specific factors are net loans, nonperforming loans, and capital adequacy ratios. Other bank-specific factors such as asset size and liquidity ratio have statistically minor effects on bank profitability. The other macroeconomic determinant, inflation rate, has no effect on the profitability performance levels of the banks studied.

The role of Covid-19 in bank profitability convergence: evidence from a sample of US banks and club clustering

ABSTRACT This paper explores whether there is convergence of bank profits in the US banking sector across the periods before and during the COVID-19 pandemic. For the first time in the literature, it provides empirical evidence from 86 largest banks in the sector by making use of certain convergence methods. The empirical (robust) findings document that over the pandemic crisis, bank profits illustrated a more convergence pattern, while certain explanatory determinants of bank profitability, such as non-performing loans and digital technology, seem to stronger impact on higher convergence during the pandemic crisis.

Determinants of bank profitability: Evidence from the emerging economy

This study examines the determinants of bank profitability in Zimbabwe, a country that has faced severe economic challenges in the past decade. To address this issue, we use a panel data analysis of 11 commercial banks over the period 2011–2020 and apply the system generalised method of moments (GMM) estimator to control heterogeneity and endogeneity issues. We find that bank specific factors, such as non-interest income, liquidity, cost efficiency, capital adequacy, and bank stability, have a positive and significant impact on bank profitability, while the industry factor, bank concentration, has a negative and significant impact on bank profitability. We also find that macroeconomic factors, such as gross domestic product (GDP) and inflation, do not have a significant influence on bank profitability. This result is surprising given the high inflation and low growth rates experienced by Zimbabwe in recent years. Moreover, we find that regulatory capital weakens the positive effect of bank stability on bank profitability in Zimbabwe. This result suggests that higher capital requirements may reduce the risk-taking incentives or opportunities of banks, which may lower their profitability potential. Finally, we find no evidence of a moderating effect of fintech on bank performance. This result implies that fintech may not significantly impact the competitiveness and performance of banks in Zimbabwe in non interest income activities. Our study concludes that bank profitability in Zimbabwe is mainly determined by internal factors that are under the control of bank managers and regulators, rather than external factors that are beyond their influence. Based on these findings, we provide several policy implications and recommendations for enhancing bank profitability and fostering a sound and resilient banking sector in Zimbabwe.

Dynamics of Asset and Liability Management Determinants of Bank Profitability

Dynamics of Asset and Liability Management Determinants of Bank Profitability