Bank Profitability Research Articles

Assessing the Effect of Strategic Alliances on Organizational Performance of Commercial Banks in Nigeria

This study was carried out to examine the effect of Strategic Alliances on Organizational performance of commercial banks in Nigeria. The study adopted a cross-sectional survey design with primary data generated through self-administered questionnaire. The population for this study was five (5) commercial banks in South-South, Nigeria. The study however focused mainly on their regional offices located in Asaba, Delta State, Nigeria. Six regional managers for each bank were used as the study respondents giving a total of 30 respondents. Census sampling was adopted since the study sample was small. The reliability of the instrument was achieved by the use of the Cronbach Alpha with all the items scoring alpha coefficient above 0.70. The hypotheses were tested using the spearman rankorder correlation co-efficient with the aid ofstatistical package for social sciences (SPSS). The tests were carried out at a 95% confidence interval and a 0.05 level of significance. The study findings revealed that there is a significant relationship between strategic alliances on revenue performance, cost efficiency performance and on the profitability of commercial banks in South-South, Nigeria. The study recommends that commercial banks should invest in modern technologies to effectively integrate all the banks functions and activities to minimize operational costs. The top management team should invest more on financial innovations so that customers will have a wide scope of banking products to choose from leading to customer satisfaction and improve value addition which in turn enhances financial performance.

The impact of fintech on the profitability of Chinese commercial banks

This study assesses the transformative impact of financial technology (fintech) on the profitability of Chinese commercial banks, with a focus on addressing the challenge of endogeneity in financial data analysis. The study uses the systematic generalized method of moments (GMM) to compare the results with those from fixed-effects models in order to make the findings more reliable. The results reveal that fintech significantly impacts bank profitability, predominantly in a negative manner. This underscores the pressing need for banks to adapt and innovate, responding proactively to the fintech disruption. The practical implications of this study suggest that banks should not only invest in research and development within fintech but also tailor strategic responses according to bank types and establish a comprehensive financial services ecosystem to bolster their competitive edge and profitability. The findings are critical for bank executives and policymakers aiming to navigate the challenges posed by fintech innovations.

The impact of corruption and Islamicity on bank stability and profitability: assessing the moderating effect in dual banking systems

Purpose This paper aims to examine the impact of corruption on bank stability and bank profitability separately for Islamic banks as well as conventional banks. Moreover, it also investigates whether the existence of Islamicity and corruption in the environment can moderate the Islamic banks-stability and Islamic banks-profitability relationships. Design/methodology/approach Sample of the study consists 136 banks comprising 70 Islamic and 66 conventional banks over the period 2015–2021 from nine countries with dual banking systems. Panel data fixed effect estimator with year effects is used to estimate the results. Findings Results of the study show that Islamicity is positively and corruption is negatively related to bank stability as well as bank profitability. Further, it is found that the effect of corruption is significantly different between Islamic and conventional banks, wherein conventional banks are more adversely affected than Islamic banks. However, an insignificant difference between Islamic and conventional banks is observed in the case of Islamicity. Practical implications The study provides theoretical and practical implications. On theoretical side, the study presents Islamicity as more reliable measure of religiosity based on Islamic values that can help in control of corruption by moderating corruption-bank stability nexus especially in dual banking economies which have high share of Muslim population. On practical side, the study recommends policy and operational measures for mitigating corruption aiming bank stability. Originality/value The results of this study contribute to the corruption-finance, religion-finance and dual banking literature. This study suggests that regulators and bank management must consider corruption and Islamicity while formulating their policies for better bank performance/stability.

The Influence of Loan at Risk and Bank Spesific Variables on The Profitability of Commercial Banking in Indonesia Based on Core Capital: Period 2015 to 2022

This research aims to examine the influence of loan at risk (LAR) and other specific bank variables, namely size, leverage, and capital, on the profitability of commercial banks in Indonesia based on the classification of core capital set by banking authorities. The study utilizes panel data regression with a balanced fixed-effect model from a sample of 67 examined commercial banks, both in aggregate and based on the core capital classification of each bank, covering the research period from 2015 to 2022. The results indicate that the credit asset portfolio with LAR quality significantly affects the profitability of commercial banks negatively, both in terms of ROA and ROE, applying to the entire group of commercial banks studied. Meanwhile, other specific variables have varying degrees of influence and significance. Collectively, the independent variables in all research models have a significant impact on the profitability of all commercial banks in Indonesia. The findings of this study can contribute to the reference for bank management and other stakeholders in assessing the profitability performance of commercial banks, as well as expanding the literature in the field of banking.

Determinants of bank deposit in a small economy’s banking sector: a study of Fiji

Purpose Deposits, a liability component of banks’ balance sheet, are an important source of funding for commercial and retail banks. In this study, the authors consider deposits as dependent variable and examine factors (bank-specific, macrofinance and structural) that could plausibly explain deposits. Subsequently, the findings are expected to support analysts, bank managers and regulators, especially in small economies such as Fiji, for asset–liability management. Design/methodology/approach This study uses a balanced panel of six commercial banks and two credit institutions over the period 2000–2022. To control for bank heterogeneity, a fixed-effect regression method is used. Findings Bank-specific variables such as bank size, profitability, loan-to-deposit ratio and bank stability are positively associated with bank deposits, whereas the capital adequacy ratio is negatively associated with bank deposits. Macroeconomic variables such as remittances and gross domestic product per capita are positively associated with bank deposits. Moreover, institutional variables such as control of corruption, political stability and regulatory quality are positively associated with bank deposits. However, tail events such as the global financial crisis of 2007–09 and the COVID-19 pandemic negatively influence bank deposits. Structural breaks for 2007 and 2011 of two banks (Bank of the Baroda and Bank of the South Pacific, respectively) are positively associated with bank deposits. Originality/value Previous studies have considered profitability, competition, nonperforming loans and stability of banks in Fiji. To the best of the authors’ knowledge, this study is the first to consider the determinants of bank deposits, an important source of funds for banks in many small countries including Fiji. In addition, this study examines the impact of structural breaks, tail events such as the recent pandemic (COVID-19) and institutional variables.

Determinants of bank profitability in Ethiopia: does political stability matter?

Determinants of bank profitability in Ethiopia: does political stability matter?

Internal determinants of profitability in Nepali commercial banks

Internal determinants of profitability in Nepali commercial banks

Dampak Rasio Kecukupan Modal dan Risiko terhadap Profitabilitas pada Bank Konvensional di Indonesia

Purpose: To determine the effect of capital adequacy ratio, market risk, credit risk, liquidity risk, operational risk, bank size, and other variables on banking profitability in Indonesia. Methodology: Panel data regression analysis; purposive sampling; capital adequacy ratio, market risk, credit risk, liquidity risk, operational risk, bank size as instruments; 39 banks listed on Indonesia Stock Exchange; return on assets as dependent variable. Results: Capital adequacy ratio and bank size have a positive and significant influence on profitability. Credit risk and operational risk have a significant negative effect. Market risk and liquidity risk have no significant effect. Limitations: The study is limited to data from banks listed on the Indonesia Stock Exchange between 2018-2024, so it may not reflect conditions outside this period or region. Contribution: This research is useful in the fields of banking management, corporate finance, and investment strategy.

Impact of Mobile Money innovation in Ghana on bank profitability

The study investigated the bank specific, industry and macroeconomic factors that impact the profitability of banks from a developing country perspective. The differentiator for this paper is the inclusion of mobile money floats as a factor that influence bank profitability in a mobile money driven financial system. Using panel data techniques, the study found that bank-related factors that drive bank profitability are operating expense ratio, capitalisation, and bank size. All macroeconomic variables included in the study are also important in explaining bank profitability and so is market concentration and regulation. The study however, revealed that mobile money floats does not influence bank profitability significantly, however, bank size complements and moderates the relationship between mobile money and bank profitability positively. The study recommend that smaller banks should invest more in information technology to attract more mobile money floats to improve upon profitability and consequently financial inclusion and economic development.

The Effect of Murabahah, Mudharabah and Musharakah Financing on Profitability in Sharia Commercial Banks

Financing is an important activity for Islamic banks. Islamic banks, which have a function as an intermediary institution, are obliged to carry out operational activities effectively and efficiently in order to generate maximum profits. This study aims to determine the influence of Murabahah, Mudharabah, and Musharakah Financing on profitability in Sharia Commercial Banks in Indonesia. The analysis method used is the panel data regression method with the selected model being the Fixed Effect Model. The population in this study is all Sharia Commercial Banks in Indonesia registered with the FSA for the 2019-2021 period as many as 14 Islamic banks. The determination of the number of samples was carried out using the Purposive Sampling technique and was determined as many as 9 samples of Islamic banks. The results of the t-test show that partially Murabahah Financing and Musharakah Financing do not have a significant effect on profitability, while Mudharabah Financing has a negative and significant effect on profitability. The results of Test F show that simultaneously Murabahah, Mudharabah, and Musharakah Financing has a significant effect on profitability in Sharia Commercial Banks in Indonesia registered with the Financial Services Authority for the 2019-2021 period.

Does Regulation Only Bite the Less Profitable? Evidence from the Too‐Big‐To‐Fail Reforms

AbstractWhat shapes banks' response to capital requirement reforms? While prereform capitalization is important in the short term, we posit that profitability is key in the medium term, as it underpins banks' capacity to build capital. We examine the impact of capital surcharges on systemically important banks. Through a novel application of textual analysis to identify when banks react, we show that less profitable banks contract when faced with higher requirements, especially if they are closer to the thresholds that determine their surcharges. Conversely, more profitable banks continue to expand, improving banking efficiency but raising concerns about concentration and exposure to tail risks.

The Effect Of Non-Performing Loans On The Financial Performance Of Commercial Banks In Ghana

Non-performing loans (NPLs) are considered financial pollution as a result of their high risk and effect on the profitability and liquidity of banks. The study examines the effect of non-performing loans on the financial performance of commercial banks in Ghana. The study is guided by the following research objectives: examining the level of NPLs of commercial banks in Ghana, examining the relationship between loan-to-deposit ratio and profitability and determining the relationship between NPLs and the financial performance of selected commercial banks. The data for this study was obtained from financial institutions from 2010 to 2021. The NPL rate shows some volatility but generally decreases from 2010 to 2014. It reached its lowest point in 2014 at 11.3%. However, from 2015 to 2017, there was a notable increase in the NPL rate, with a peak of 21.59% in 2017. The findings show that non-performing loans have a positive and significant relationship with ROA. The finding indicates a positive and significant relationship between loan deposit ratios. The study recommends the need to implement strong risk management practices to identify and mitigate potential credit risks proactively. This includes monitoring and early detection of deteriorating loan accounts, regular portfolio reviews, and stress testing. By identifying high-risk loans early, banks can take timely actions to mitigate potential losses and prevent loans from becoming non-performing. Also, management has to invest in training and development programs for loan officers and credit staff. Ensure they have the necessary skills and knowledge to accurately assess creditworthiness, detect warning signs, and effectively handle loan monitoring and collections.

Model risk management in stress testing: The road up to here

This paper reviews the historical evolution of the quantitative models, model usage and model risk management (MRM) in large US banks since the 1980s. It comments on the most significant model-related events through this period. Some of these events were associated with contexts of great stress to the financial system. The paper identifies the main features of modelling in finance and economics that distinguish it from its application in the natural sciences. Then it presents the different types of models used in the large banks' stress testing programmes, the specific characteristics and risks of each type of model and the best practices for the implementation of sound model risk management, and it suggests a proper way to interpret the results of stress testing and capital assessment in the presence of model risks. The paper discusses the future evolution of MRM towards the implementation of a `fully fledged risk management framework` along the lines of other risk management disciplines, including risk identification, measurement, monitoring, reporting, limiting and capitalisation. It acknowledges the enhancements and opportunities offered by advances in the use of artificial intelligence and machine learning as well as increases in computational power. The paper concludes by noting that the model risk management framework that has been enforced by the Federal Reserve's stress testing and capital planning programmes has substantially strengthened the capital position, profitability and resilience of the large banks in the US.

Fueling the bottom line: Decoding the effects of oil on banking performance in net oil-importing economies

Banks play a pivotal role in the financial sector, assuming critical functions such as facilitating the monetary policy transmission mechanism and acting as intermediaries between savers and borrowers. Meanwhile, oil represents a fundamental input for economic activities, and its inherent volatility serves as a significant catalyst for economic instability. Given the critical roles of banking institutions and oil in the economy, their relationship garners attention from various stakeholders. The growing body of literature has examined the nexus between oil and banking performance. However, existing research has predominantly concentrated on either oil-exporting jurisdictions or country-specific analyses. Hence, the present study endeavors to bridge this gap in the literature by investigating the intricate dynamics between oil and banking performance, specifically in net oil-importing countries. The dynamic panel method is employed. The findings indicate that oil has direct and indirect effects on the profitability of banks operating through transmission channels.

Changes in bank profitability Post-CEO succession: Does prior CEO experience improve bank performance?

Based on a unique hand-collected dataset of CEO succession events in US bank holding companies (BHCs), we find that prior CEO experience of the newly appointed CEO improves bank profitability post-CEO succession, but primarily in underperforming banks. We distinguish prior CEO experience based on where the experience was obtained and find that the performance effect is driven by the experience gained outside the bank. Moreover, our study indicates that new CEOs with previous CEO experience acquired outside the bank are more likely to enhance profitability through earnings manipulation than those who obtained CEO experience within the bank or those without any previous CEO experience.

Is digital transformation profitable for banks? Evidence from Europe

Studies on the impact of digital transformation (DT) on bank performance are typically restricted to single countries and present mixed findings. Using data on 279 EU-27 banks from 2017-2022 and employing a novel DT index, we demonstrate that DT is associated with higher bank profitability, and that IT and network efficiency are key drivers. Furthermore, Covid-19 and the level of country IT positively moderate this relationship. Interestingly, additional analyses also reveal nonlinear relationships, which suggest that profitability gains from DT investments can take time to materialize and that there are diminishing marginal returns to some DT investments.

Impact of Capital Structure on Profitability of Commercial Banks in Tanzania

This paper aims to examine the impact of capital structure on the profitability of commercial banks in Tanzania using panel data from 2017to 2021. Specifically, the study wants to investigate the impact debt and equity in capital structure on profitability of commercial banks in Tanzania. The study employed panel data research design and used secondary data which were extracted from audited financial statements of commercial banks. Return on assets was used as the dependent variables while independent variables were debt and equity capital as well as the debt-equity ratio. Result from the analysis indicates that initially the variables were not normally distributed which necessitate normalization of variables. Correlation analysis was performed and there was no multicollinearity problem between the variables. Based on Hausman test fixed effect model was selected as the appropriate model. The results from the analysis showed that 1% increase in debt capital increases profitability of commercial bank by 16.79%. The positive debt-profitability coefficient implies opportunities for enhancing profitability of commercial bank through debt financing. Result further revealed that 1 % increase in debt-equity ratio is associated with 18.07% decline in profitability. Which implies negative relationship between debt-equity ratio and profitability. On the other hand, increase in equity finance is associated with decline in profitability holding other factors constant. However, the study recommends a comprehensive assessment and consideration of situational factors while carrying out capital structure decision inverse relationship between debt-equity ratio also implies that excessive debt may pose financial risk and make the company less attractive to potential investors.

Effect of Capital Adequacy, Bank Size and Lending Interest Rate on Profitability of Commercial Banks in Nepal

Purpose : This study aims to examine the effect of capital adequacy, bank size and lending interest rate on the profitability of commercial banks in Nepal.Methods: This research used a combination of descriptive and causal comparative research design using secondary source of data obtained from the annual report of corresponding commercial banks. A panel data from the fiscal year 2013/14 to 2022/23 were obtained from six randomly selected commercial banks. Results: The capital adequacy ratio exhibits a significant positive impact on ROA signifying that a robust capital base strengthens financial stability, lowers funding costs, and promotes profitable lending operations. The analysis reveals that bank size has negative effect on ROA but the effect is insignificant suggesting that variations in size do not substantially influence profitability, implying that other determinants are more critical in shaping financial performance. Furthermore, the results indicate a significant negative effect of lending interest rates on return on assets (ROA), which are attributed to factors such as increased borrower repayment capacity, reduced loan demand, higher non-performing loan risks, and elevated funding costs negatively impact overall bank profitability Conclusion: Capital adequacy ratio plays a critical role in increasing bank profitability. Other factors such as bank size and lending interest rates need to be managed to optimize financial performance. Future research is necessary to explore these relationships in more diverse banking environments and consider additional variables to further understand the drivers of bank profitability.

Does the environmental impact of banks affect their financial performance?

AbstractWe empirically study the environmental impact of banks, i.e., the negative externality on the environment and society deriving from the use of a natural resource or the emission of a pollutant. We find that environmental “impact ratios”, that is, environmental damage costs in proportion to total revenues are negatively correlated with bank profitability. Furthermore, banks with a stronger impact on the environment are valued less by equity market investors and pay less cash to shareholders. Among environmental categories, potential damage from greenhouse gas emissions or waste seems to be especially severe. We provide important insights for banks’ environmental management. If bankers can address businesses and practices to be more renewable and lower in their emissions, they could improve both the operating and the market performance. Thus, firms would be financially more stable and could react smoothly to the recent introduction of stricter and onerous environmental regulations.

Evaluating the Impact of NPA Dynamics in Selected Indian Banks: A Fifteen-Year Comparative Study

Purpose: The purpose of this study is to investigate the impact on bank profitability, capital structure, and financial stability and trend analysis regarding non-performing assets [NPAs] performance in selected Indian public sector banks vis-à-vis that observed in private sector ones during fifteen years. Methodology: For this research, a quantitative methodological approach has been used, and for quantifiable data, annual reports from four select banks, which include two public sector banks [The Bank of Baroda, The State Bank Of India] as well as two private sector banks [ICICI Bank Ltd., Nainital bank], are analyzed for the period ranging 2008-09 to 2022-23. The analysis calculates Compound Annual Growth Rates [CAGR] and t-tests, Panel Regression models to determine the relationship between GNPA additions, reductions, and write-offs with closing balances. Findings: A major increase in GNPAs is observed in the research among Scheduled Commercial Banks. The public sector banks found an even larger dynamism in NPA growth rates than private sector banks, manifesting the fluctuation to a high degree. The study identifies GNPA addition, reduction, and write-off as key determinants of their respective closing balances. Even though there have been many policy initiatives, the public sector banks [PSBs] remain at a higher level of NPAs due to governance deficits and political interference. The effectiveness of these predictors on GNPA is also confirmed using the Random Effect Model, thus requiring improved risk management practices. Originality: The content of this article is guaranteed to be original.