Profitability Of Banking Sector Research Articles

Does Political Stability Matter to the Profitability of Banks?

This study examines the impact of net interest margin, non-interest income, non-performing loans, and Political Stability Index on the banks’ profitability regarding return on assets in developing Asian countries, focusing on how political stability affects the bank’s profitability. The secondary data from 14 developing countries used in this study are collected from the World Bank and World Financial Studies Report. The dataset includes 154 data points spanning from 2012 to 2022, focusing on 14 underdeveloped countries of Asia. Exploratory and analytical research designs are utilized. Data are analyzed by using EViews 12. Econometric tools such as descriptive statistics, correlation analysis, panel unit root testing, Fisher-Johnsen combined co-integration test, panel vector error correction model, and Wald test investigate the relationship between response and predictor variables. The net interest margin, non-interest income, non-performing loan, and Political Stability Index are jointly integrated to determine the bank’s profit of developing countries of the Asia continent. Interest margin, non-interest revenue, non-performing loans, and the Political Stability Index all show a 38.6 percent variance in bank profit. It has been discovered that for every unit that rises in net interest margin and Political Stability Index, the bank profitability of developing Asian countries increases by 0.4867 and 0.2221 percent, respectively. Non-interest income has little bearing on the profitability of banks. Meanwhile, non-interest income exhibits minimal influence, suggesting a need for a strategic focus on interest margin enhancement and fostering political stability to optimize banking sector profitability in the region.

Impact of uncertainty on the performance of banking issuer shares 2018-2022

The aim of this research is to determine the effect of inflation and interest rates on stock prices with the profitability of banking sector companies as an intervening variable for the 2018-2022 period. The approach used in this research is a quantitative approach. The research sample includes 30 banking sector companies listed on the Indonesia Stock Exchange from 2018 to 2022. This research data is secondary data and was analyzed using panel regression analysis techniques. The results of this research are that inflation can have a direct impact on profitability, but interest rates do not have a direct impact on profitability. In addition, profitability directly affects stock prices. However, inflation and stock prices do not directly affect stock prices. Profitability cannot offset the impact of inflation and interest rates on share prices

The Effect of Non-Performing Loans on Sector Profitability in the Turkish Banking Sector

The main purpose of this study is to determine the impact of non-performing loans (NPLs) on profitability of banking industry in Turkiye. In this study, in order to examine the basic indicators of profitability, non-performing receivables and consumer credit cards, non-performing housing and vehicle loans, non-performing consumer loans, consumer loans, loans and credit cards, net profit-loss and non-performing loans were compiled to generate a data set for the period between 2004 and 2018. Due to the different integration levels of the series obtained, models based on the autoregressive distributed lag (ARDL) approach, which is one of the time series regression methods, were established to analyze. Then, the effect of non-performing receivables on the banking sector profitability was examined. The initial findings reveal that the increase in non-performing receivables significantly reduced the profit of the banking sector.

Beyond innovation: Fintech credit and its ripple effects on traditional banking profitability

This study examines the relationship between fintech credit growth and traditional banking sector profitability. It finds a robust negative relationship between the two, suggesting that a rise of alternative credit lines could rival traditional banking and even lead to subdued bank profitability. The negative relationship is stronger for banking sectors that are more concentrated and operate with higher interest margins. These results prompt strategic considerations for banks, such as partnerships and innovation.

The Impact of Macroeconomic Factors on the Banking Sector’s Profitability in Pakistan

This research aims to study and analyze the impact of macroeconomic factor on the banking sector’s profitability in Pakistan. Banking sector of Pakistan is the backbone of its economy. The study explains the importance of banking industry of Pakistan and its achievements and evolvement throughout the years. The objective of the study is to examine the macroeconomic factors’ influence on the banking sector in Pakistan and to investigate that whether the profitability is only determined by the bank-specific internal factors or if it is also influenced by macroeconomic shocks and factors of the economy. The study is quantitative and secondary data is employed in order to conduct this paper. The sample size is financial data of scheduled banks in Pakistan from the year 2000 to2022, which is converted in quarter data and 84 observations have been incorporated in the study. “Returns on Assets” (ROA) is selected as dependent variable of this study since it measures profitability of banks. Whereas “Foreign Direct Investment” (FDI), “Exchange rate” (LER), “Inflation” (INF), “GDP growth” (GROWTH), “Liquidity” (LLIQ), “Total Deposits” (LT_DEP) and “Credit’s ratio” (CREDIT) of the banks are selected as independent variables. The data for bank specific variables is collected from the websites of “State Bank of Pakistan” (SBP) and “Federal Reserves of Economic Data” (FRED) while the data for macroeconomic variables is derived from the database of “World Bank” and “Macrotrends”. For empirical analysis, we have applied “Vector Autoregression” (VAR) model, followed by “Multivariate Granger Causality test”, “Impulse Response Function” (IRF) and “Forecast Error Variance Decomposition” (FEVD). The main findings of study reveals that the profitability of Banking sector in Pakistan is more influenced by its own internal factors rather than the external / macroeconomic factors. Amongst macroeconomic variables, “Foreign Direct Investment” (FDI) and “Inflation” (INF) are found to have the significant impact, while “Exchange rate” (LER) and “GDP growth rate” (GROWTH) are found to have insignificant impact on banks’ “Return on Assets” (ROA). All the internal factors of our study i.e. “Liquidity” (LLIQ), “Deposits” (LT_DEP) and “Credit ratio” (CREDIT) are found to have significant impact on profitability, which is measured through “Return on Assets” (ROA). In short, the profitability of banking sector in Pakistan is mainly influenced by bank-specific internal factors of the industry. The macroeconomic factors are only 50 percent % affective on the banks’ performance.

Sectorial Allocation of Banks’ Assets and Profitability of Commercial Banking Sector in Nigeria

This study examines sectorial allocation of banks’ assets and profitability of commercial banking sector in Nigeria. The study made use of return on assets (ROA) as proxy for dependent variable measuring profitability of commercial banks in Nigeria while banks assets allocations to Petroleum Sector, Breweries Sector, Conglomerates Sector, Agricultural Sector, Construction Sector and Fast Moving Consumer Goods Sector, was used in the study as independent variables. All data were obtained from Central Bank of Nigeria statistical bulletin and which span across 2008 to 2022. Data stationarity was ensured using the Augmented Dickey Fuller statistics, while the error correction model was applied to as the statistical tool for acceptance of hypothesis. The study also upholds the bank-based systems and that of the commercial bank theory. Sectorial allocation to the Petroleum Sector (PETR), Breweries Sector (BREW), Conglomerates Sector (CONG), Agricultural Sector (AGRIC), Construction Sector (CONS), Fast Moving Consumer Goods Sector (FMCG) is significant and positive and contributed positively to return on assets (ROA), government should ensure the proper financing and monitoring of these sectors. No causality between FCMG and PETR. PETR, BREW, CONG, AGRIC, CONS, FCMG granger cause ROA. There is a bi-directional relationship between PETR and ROA; BREW and ROA; CONG and ROA; AGRIC and ROA; CONS and ROA; and FMCG and ROA. The current risky business environment is affecting banks’ ability to lend to the Petroleum Sector (PETR), Breweries Sector (BREW), Conglomerates Sector (CONG), Agricultural Sector (AGRIC), Construction Sector (CONS), Fast Moving Consumer Goods Sector (FMCG). Commercial bank assets allocated to Fast Moving Consumer Goods (FMCG) and allocation of banks’ assets to conglomerate sector (CONG) exhibited a negative coefficients, thus suggesting reject the alternate hypothesis, and accept the null hypothesis which states that t here is no signi

CURRENT CHALLENGES AND PROSPECTS OF LOAN PORTFOLIO QUALITY MANAGEMENT IN WARTIME: THE CASE OF UKRAINE

The purpose of the study is to develop effective ways to solve the problems of managing the quality of the loan portfolio of the Ukrainian banking sector in the context of the financial crisis caused by the russian-Ukrainian war. In the course of the study, such scientific methods as fundamental provisions of the credit portfolio theory, multifactor regression analysis, extrapolation, trend analysis, mathematical programming, etc. have been used. A methodical approach to the study of contemporary problems and prospects of loan portfolio quality management under martial law, consisting in modelling the profitability of the Ukrainian banking sector, taking into account the quality of the loan portfolio, has been proposed. This approach is implemented by constructing a two-factor power regression equation; forecasting with the establishment of confidence intervals and the development of 3 forecast scenarios (realistic, pessimistic and optimistic); solving the target function to maximize the profit of the banking sector, taking into account the restrictions formed on the basis of forecasting results. A power model of dependence of Ukrainian banking sector profitability on the volume of loan portfolio and non-performing loans has been built and its statistical significance has been established on the basis of official statistics for 2012–2022. It has been determined that an increase in the volume of the bank loan portfolio by 1% leads to an increase in bank income by 3.1%, while an increase in the volume of non-performing loans by 1% leads to a 0.28% reduction in revenues of the banking sector of Ukraine. The loan portfolio and NPL series have been extrapolated to 2023–2025, which is consistent with the medium-term, as long-term projections would be unreliable under martial law and deep recession. According to the results of medium-term forecasting and optimization, it has been proved that the maximum growth of bank revenues by 60.4%, compared to 2022, is possible with an increase in the loan portfolio by 18.9%, a reduction of non-performing loans by 26% and a reduction of their share in the loan portfolio by 13.9%. It has been justified that the key condition for maximising bank revenues is the soonest termination of the russian-Ukrainian war and further expansion of effective government concessional lending programs. In particular, the effectiveness of the state program “Affordable Loans 5–7–9%”, which provided 19% of the bank loan portfolio in Ukraine and became a key mechanism of anti-crisis business support both during the COVID-19 pandemic and during the large-scale invasion from 2022 during the russian-Ukrainian war, has been substantiated.

Determinants of Non-Performing Assets and the Performance of Islamic Banks in Pakistan

These days non-performing assets have been essential factors in terms of the banking sector's profitability and sustainability. This study aims to weigh factors that may affect the surging level of non-performing assets in Pakistani Islamic banks. The study uses the Financing-to-deposit ratio (FTDR), Bank size, Return on assets (ROA), Inflation rate, and interest rate as the determinants of non-performing assets as banks' internal and external factors, respectively. The performance of Islamic banks is measured using Tobin’s Q ratio. Panel data from 2012 – 2022 was extracted from unconsolidated financial statements of Islamic banks and the World Bank database. Descriptive statistics, correlation, and panel least square regression analysis were used to find the relationship between non-performing assets (independent variable) and banks' performance (dependent variable). Data analysis is done through the EViews application software. The findings of this study revealed that there is a significant impact of different factors of non-performing assets on the performance of Islamic banks in Pakistan. The results of the analysis concluded that banks' performance can be increased by reducing the level of non-performing assets. The study will benefit the management of Islamic banks in considering these factors to improve their performance by controlling the level of NPAs.

Banking Sector Profitability During The Covid-19 Pandemic

Covid-19 has a crucial impact on various industrial sectors in Indonesia. One of the sectors affected is banking. Companies are guided to maintain maximum performance. Profitability is one indicator that reflects the company's performance. Profitability is the company's ability to earn profits during a certain period. In achieving maximum profitability, banks need to optimize the internal company that plays a role in achieving profitability. This study aims to examine the effect of Non Performing Loans (NPL), Loan to Deposit Ratio (LDR) on Return on Assets (ROA) through Net Interest Margin (NIM). The population of this research is the banking industry companies in Indonesia. The population in this study are 29 banks listed on the IDX. The method used in this study is a purposive sampling method, a sample of 24 banks listed on the Indonesia Stock Exchange was obtained. The data analysis technique used is path analysis. The findings of this study are that LDR has a significant negative effect on NIM, but a significant positive effect on ROA. NPL has a significant negative effect on NIM, and a significant negative effect on ROA. NIM was found to be able to partially mediate the effect of LDR on ROA. NIM mediates some of the NPL against ROA. The predictive ability of these three variables on ROA in this study was 22.5%, while the remaining 77.5% was influenced by other factors which were not included in the research model.

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.

Cross-Border Bank Flows and Systemic Risk

Abstract We find that heightened cross-border bank flows are associated with lower systemic risk in a target country’s banking system. The reductions in systemic risk are stronger for flows coming from source countries with stronger regulatory oversight than the target country. Such cross-border bank flows linked to regulatory arbitrage are also associated with improvements in target banking sector profitability, asset quality, and efficiency. We assess several alternative channels of influence for cross-border bank flows but interpret the evidence on these flows as mostly consistent with a benign form of regulatory arbitrage.

Quantifying the Link between Financial Development and Bank Profitability

This study seeks to examine the impact of financial development on bank profitability in Sub-Saharan Africa (SSA). We also investigate how institutional quality, bank stability, financial openness, and competition affect profitability. The researchers employ data from 33 countries covering from 2000 to 2017. Using the generalized method of moments (GMM) technique, the findings show that financial development exerts a negative significant effect on banking sector profitability. This result holds regardless of the indicator of profitability. This indicates that financial development dampens profitability in SSA. The study also reveals that institutional quality and bank stability positively and significantly influence profitability. We further observe that the impact of financial openness and competition on profitability significantly differs depending on the measure of profitability. The study discusses key implications for policy.

On the Legacy of Negative Interest Rates to the Profitability of European Banking Sector

On the Legacy of Negative Interest Rates to the Profitability of European Banking Sector

The effect of macroprudential regulation on banks’ profitability during financial crises

This study aims to investigate the effect of macroprudential regulation on banks’ profitability during financial crises, to find out whether the instruments of the Central Bank of Jordan (CBJ) enhance the performance of the Jordanian banking sector in terms of increasing banks’ profitability and reducing banking sector exposure to financial crisis vulnerability. The sample of the study consists of twelve listed banks in Jordan over the period 2000–2018. The bank’s return on assets (ROA) was regressed on instruments by using the fully modified ordinary least square (FMOLS) method. The results had shown a slightly weak significant effect of stress testing (ST) on the banks’ ROA. Capital adequacy ratio (CAR) had no significant effect, leverage ratio had the deepest effect, and banks are highly leveraged with more debt-to-equity ratio. In addition to that, a good number of the banks maintain CAR, loan-to-value (LTV), and leverage ratios higher than the minimum limit required by the CBJ and Basel requirements, suggesting that the Basel standards did not take into consideration the particularity of some countries. The results also revealed that CBJ prudential regulation instruments are succeed in keeping the stability of the banking sector profitability during previous financial crises, but still need to enhance the level of gearing for banks against future shocks

Interest Spread and the Banking Sector Profitability- An Empirical Investigation for Pakistan

The paper is an empirical exploration around the commercial banks’ interest spread and the profitability performance for Pakistani banking industry. Earlier studies have evidently proven the sensitivity of commercial banks financial performance towards the gap between their deposit rate and the lending rate. The present study therefore aims at validating (invalidating) the subject relationship using advance time-series econometric procedures. The study attempts to yield a robust statistical analysis since three different measures of banks’ profitability are employed for the purpose of econometric testing i.e. return on assets, return on equity and earnings per share. The study sample comprises seven major participants from commercial banking sector of Pakistan and the sample study period rangers from year 2002 to 2018. From the series of robust regression models, Newey-West Hetroskedasticity and Autocorrelation Consistent (HAC) estimator is used to test the hypothesized relationship. Valid statistical support is yielded in case of all three measures of profitability; however, return on assets as indicator of profitability receives highest amount of statistical support. The results hold strong policy implications for commercial banking sector of the country, calling for wise management decisions whilst deciding the deposit and the lending and rates since they are key to determining the interest spread observed by a bank which in return determines its profitability margins.

An Assessment of The Effect of Mobile Money Services on The Profitability of The Banking Sector in Zambia

The aim of the study was to investigate the effect of mobile money services on Zambia’s banking sector profitability. Profitability was proxied by Return on equity (ROE) and Gross interest income (GII). Using the Johansen Cointegration approach on quarterly data for the period 2012Q1 to 2021Q4, the results suggest a positive relationship between mobile money services and commercial banks’ profitability. Based on the results, the study recommends that there is need for commercial banks to continuously align their operational models with emergent innovative services in the sector while also appealing to regulators to collectively design regulatory frameworks that are responsive to developing sector trends.

The effect of capital structure, operating efficiency and non-interest income on bank profitability: new evidence from Asia

PurposeThe Asian banking system has been appreciated with many distinct qualities including consistent in profitability. Many studies have examined the profitability of Asian banking sector from diverse perspectives. However, studies on bank profitability in connection to the capital structure, operating efficiency and non-interest income are only a few. This study investigates the influence of capital structure as estimated by leverage ratio and long-term debt, operating efficiency and non-interest income on the profitability of the banking industry in 28 countries of Asia.Design/methodology/approachThis paper utilizes fixed effect regression model by involving panel data with sample of 492 banks from 28 countries of Asia for the time span of 15 years from 2004 to 2018.FindingsThe results confirm that an increase in total debt ratio increases the profit margin of the bank as supported by the agency cost theory, suggesting that the debt financing increases the profitability of the firm. In addition, the findings reveal that lowering the operating expenses and managing of costs effectively can boost the profitability of bank. Furthermore, non-interest income plays a vital role when the interest rates are lower. Hence the study suggests that a careful investment in this sector can generate income as well as increase the profit margin of the banking arena.Originality/valueThe paper examines the profitability of bank by including impact of leverage ratio and long-term debt as a measure of capital structure along with the influence of operational efficiency and non-interest income which contributes to the understanding of the existing literature.

The nexus between financial inclusion and bank profitability: a dynamic panel approach

ABSTRACT This study examines the impact of financial inclusion on bank profitability in Sub-Saharan Africa (SSA) over the period 2000–2017. Using different sub-indicators of financial inclusion, the study employs the principal component analysis (PCA) to generate an index of financial inclusion. Applying the generalized method of moments technique which addresses the problem of endogeneity, the results show that financial inclusion negatively influences bank profitability in Sub-Saharan Africa, particularly in the post-global financial crisis period. Banking sector stability is noted to positively and significantly drive bank performance. Besides, while inflation has a significant positive impact on profitability, the effect of economic growth on profitability differs depending on the period of analysis. The study suggests that policy measures aimed at achieving a financially inclusive economy should encompass policies directed at improving banking sector profitability. That is, strategies to stimulate financial inclusion should move in tandem with policies to boost profitability.

Profitability of Islamic banks verses conventional banks in Pakistan

This research study analyzes the profitability of Islamic banks versus conventional banks in Pakistan from 2006 to 2020. The main objective of this study was to examine the profitability of three Islamic banks, Bankislami, Dubai Islamic Bank Ltd, and Meezaan Bank, whereas three conventional banks like Habib Bank Limited (HBL), Muslim Commercial Bank (MCB), United Bank Limited (UBL) in Pakistan from the year 2006 to 2020. This study investigates whether Islamic banks are performing well in Pakistan compared to conventional banks. Ratio analysis has been used to measure profitability, and two variables have been used, ROA and ROE, to measure the banking sector's profitability. The study concluded that Islamic banks were more profitable during the year 2007-2008 only while conventional banks were more profitable in the year from 2006- 2015 except 2008, in respect of ratio analysis, although in the year 2007-8 performance and profitability of Islamic banks are suitable according to the overall results conventional banks are more efficient and profitable than Islamic banks in Pakistan.

Banking Sector Profitability: Does Household Income Matter?

Household incomes, their level and dynamics are one of the factors that ensure the achievement of the Sustainable Development Goals. At the same time, stable development of the banking sector, which is impossible without steady earnings, determines economic growth, which also positively affects reaching the Sustainable Development Goals. The paper examines the impact of household income on the return on assets of the banking sector in Russia using annual time series from 2003 to 2019. The study was conducted using formalized economic and mathematical methods of analysis by linear regression with least squares tests on the significance of the model, with tests for redundancy of insignificant variables (Wald test), Ramsey test on the functionality of the model, White and Breusch Pagan test for heteroscedasticity (heterogeneity of observations) and multicollinearity by method of inflation factors, graphic method. The Multiple Linear Regression (MLR) model was used. The results show that (1) an increase in the growth rate of household income and deposits in the non-financial sector has a positive effect on the return on assets of the banking sector; (2) an increase in the growth rate of the price of Brent crude oil and non-performing loans negatively affect the dependent variable; and (3) the regions that have the greatest (positive and negative) impact on profitability of whole bank sector in Russia were identified. Increasing household incomes and eliminating inequality in the incomes of the population of different regions will have a positive impact not only on social well-being but will also provide the banking sector with the opportunity for profitable operation and create conditions for sustainable growth. Our conclusions are useful for the regulator and individual banks and can be taken into account when developing and implementing policies aimed at sustainable development.