Profitability Of Commercial Banks Research Articles

Effects of Non-Performing Loan and Operational Efficiency on Profitability of Nepalese Commercial Banks

This study examines the effects of non-performing loan and operational efficiency on profitability of Nepalese commercial banks. Return on asset and return on equity are selected as the dependent variables. Similarly, loan to deposit ratio, capital adequacy, loan loss provision, non-performing loan, operating income and operating expenses are selected as the independent variables. This study is based on secondary data of 15 commercial banks with 105 observations for the study period from 2015/16 to 2021/22. The data were collected from Banking and Financial Statistics published by Nepal Rastra Bank(NRB), annual reports of the selected commercial banks and reports published by Ministry of Finance. The correlation coefficients and regression models are estimated to test the significance and importance of loan to deposit ratio, capital adequacy ratio, loan loss provision, and non-performing loan, operating income and operating expenses on the profitability of Nepalese commercial banks. The study showed that that loan loss provision ratio, non-performing loan ratio and capital adequacy ratio are the positive impact return on assets (ROA). It indicates that higher the loan loss provision ratio, non-performing loan ratio and capital adequacy ratio, higher would be the bank return on assets (ROA) of commercial banks in Nepal. Similarly, the study also shows that loan to deposit ratio, operating income ratio and operating expenses ratio have a negative impact on return on assets (ROA). It indicates that higher the loan to deposit ratio, operating income ratio and operating expenses ratio lower would be the return on assets of Nepalese commercial banks.

Analysis of the Effect of Temporary Syirkah Funds and Operational Efficiency on Profitability with NPF as a Moderating Variable (Study on Islamic Commercial Banks 2017-2022)

This study aims to examine the effect of Temporary Syirkah Funds and Operational Efficiency on Profitability with NPF as a moderating variable. This study uses a type of quantitative research with a causal associative approach. The sampling technique used purposive sampling so that it was collected by 8 Sharia commercial banks. Data is obtained secondary through annual reports published on the website of each bank for 2017-2022. This study uses hypothesis testing using multiple linear regression testing tools. Data is processed using the Eviews-10 software application. The results showed that temporary syirkah funds had a positive and significant effect on profitability, operational efficiency did not affect profitability, Non-Performing Finance (NPF) was able to moderate the effect of temporary syirkah funds on profitability, Non-Performing Finance (NPF) was unable to moderate the effect of operational efficiency on profitability in Islamic commercial banks. Keywords: temporary syirkah fund, operational efficiency, profitability, non-performing finance

Musharakah Financing: Profitability Improvement Tool for Islamic Banks

Islamic commercial banks are part of country’s financial system and play a crucial role in business industry. Similar to other business firms, Islamic commercial banks seek profits, growth and sustainability. This study attempted to analyze the effects of musharakah financing on the profitability of Islamic commercial banks. The majority of literature of finance relates to traditional finance, which has so many weaknesses. In contrast, this study focuses on Islamic banking theory with specific emphasis on Musharakah financing which is essential mechanism in the practice of Islamic banking and finance. The data were analyzed using statistical package for social science to examine the extant of the effects of musharakah financing on the profitability of Islamic commercial banks. Results: The results showed that musharakah financing has a positive effect on profitability of Islamic commercial banks (r = 0.882, p < 0.05). The study concludes that increase in Musharakah financing significantly improves profitability of Islamic commercial banks. The study presents several managerial implications, suggesting the importance of increasing service exposure to attract new customers, enhance public awareness towards musharakah financing, conduct regular visits to gain deep and accurate information concerning the operations of joint ventures business, and finally, the bank should have clearly written policy on musharakah agreement, financing, management and control systems. This study contributes to the existing literature on Islamic finance and banking, highlighting its growing global practice and theory, driven by community ethical and financial needs, innovation, and market competitiveness.

The Role of Green Banking Implementation in Sharia Banking Performance from an Islamic Perspective

The aim of this research is to determine the effect of implementing green banking on the profitability of Islamic commercial banks in Indonesia and the concept of green banking from an Islamic perspective. This research was conducted at Islamic commercial banks registered with the Financial Services Authority (OJK) for the 2016-2022 period. The population in this study consisted of 12 Islamic commercial banks. The sample selection used a non-probability sampling method with a purposive sampling technique and a sample of 8 Islamic commercial banks with 7 years of observation was obtained so that 56 research data were obtained. The hypothesis testing method in this research uses a panel data regression model with a Fixed Effect Model (FEM) approach using the EViews program. The urgency of this research is to see the impact of implementing green banking on Sharia banking performance, especially from an Islamic perspective. The research results show that Green Banking practices have a negative and insignificant effect on Sharia banking performance.

Effects of Non-Performing Loans & COVID-19 Pandemic on the Performance of Commercial Banks in Sri Lanka

The COVID-19 pandemic has significantly impacted the global economy, and the non-performing loans (NPLs) have become a pressing issue for commercial banks in Sri Lanka. It is doubtful how the NPLs and COVID-19 Pandemic have affected the performance of commercial banks in Sri Lanka. Thus, the purpose of this study is to investigate effects of non-performing loans & COVID-19 pandemic on the performance of Sri Lankan commercial banks for the period of 2011 - 2021. The panel data regression analysis was used to investigate the effects of non-performing loans & COVID-19 pandemic on the financial performance of Commercial Banks. The results of the analysis revealed that non-performing loans and the pandemic period have a negative impact on the profitability of commercial banks in Sri Lanka. Thus, this study is useful for bank management officials to protect banks from crises and create ideas to enhance the performance of banks.

How does digital transformation affect the profitability of rural commercial banks?

Under the impact of the business sinking of large commercial banks and the cross-border competition of fintech companies, digital transformation has become a strategic priority for rural commercial banks. However, can digital transformation improve the profitability of rural commercial banks (PORCB)? This aspect has not been thoroughly examined in academic literature. This study utilizes unbalanced panel data from 54 Chinese rural commercial banks spanning from 2010 to 2021. The Peking University Commercial Bank Digital Transformation Index is employed to gauge the extent of digital transformation, while ordinary least squares estimation is used to examine its effect on the profitability of rural commercial banks and elucidate its underlying mechanisms. The findings show that: (1) Digital transformation can significantly improve the PORCB. (2) Digital transformation improves the PORCB by enhancing asset quality, operating efficiency and risk-taking. (3) The profitability-enhancing effect of digital transformation is more pronounced among rural commercial business banks with larger assets and lower equity concentration, as well as among state-owned rural commercial banks. This paper's findings represent a novel investigation into the correlation between digital transformation and the profitability of rural commercial banks. They offer a theoretical foundation and empirical evidence for future studies examining the economic implications of bank digital transformation, and offer valuable insights for enhancing the digitalisation of rural banks.

HIERARCHICAL CLUSTERIZATION AND DEEP LEARNING MODEL RANDOM FOREST OF BANKS’ STABILITY UNDER RISK CONDITIONS

Certain theoretical aspects of the stability of Russian banks under risk conditions have been studied. The relevance is due to the fact that in conditions of market uncertainty and risk, approaches to ensure the stability of banks using artificial intelligence are increasingly being used. The goal is to identify patterns between the characteristics of Assets and ROA (Return on Assets), an indicator of return on assets, and obtain a forecast value of Sberbank’s net profit. The result of the study was hierarchical clustering, as well as the generated Deep Learning model Random Forest, which calculated the predicted value of the Sberbank’s net profit. The novelty lies in the fact that the work puts forward and proves the hypothesis that using the Random Forest Deep learning model, a forecast of the net profit of commercial banks can be obtained, which predetermines the stability and dynamics of their development. The conclusions from the study boil down to the fact that a Deep Learning model Random Forest was developed to forecast the amount of net profit, which for Sberbank for 2023 amounted to 38,631 billion rubles, which coincided with its actual value. The area of application of the results obtained is commercial banks.

Impact of working capital management on profitability of private commercial banks in Ethiopia

Working capital management is an important financial management decision for the profitability of commercial banks. The purpose of this study is to examine the impact of working capital management on commercial banks' profitability. The study used secondary data from audited financial statements of five private commercial banks in Ethiopia covering the period from 2011 to 2020. The banks were selected on a convenience basis. The financial information from the banks was analyzed to determine the impact of the current ratio, bank size, a current asset-to-total asset ratio, loans and advances to total asset ratio, and current liabilities-to-total assets ratios on profitability. The researchers applied descriptive statistics and inferential statistics. The data were analyzed using the Stata data processing package. An econometric model is applied to examine the impact of working capital management on the profitability of commercial banks. A random effect model was employed and the result revealed that bank size and loans and advances to total assets were found to have a significant impact on banks' profitability. The current ratio, a current asset-to-total asset ratio, and current liabilities-to-total assets ratios were found insignificant to influence banks' profitability. Since the profitability of the banks depends on working capital management, rigorous attention should be given to those factors that influence the profitability of commercial banks.

Analysis of Determinants That Influence the Profitability of Conventional Banks in Indonesia

This research aims to examine the factors that influence the level of profitability in conventional banking in Indonesia in 2010-2019. This research uses Return on Assets (ROA) as a ratio to describe the level of profitability of commercial banks in Indonesia. The object of this research is conventional banking in Indonesia, with a research sample of 6 groups of conventional banks, namely Persero Banks, Foreign Exchange Private Banks, Non-Foreign Exchange Private Banks, Regional Development Banks (BPD), Joint Venture, and Foreign Banks. The analytical method used in this research is panel data regression analysis with Random Effect Model (REM). The research shows that the spread interest rate, Bank Indonesia Certificate (SBI), and third party funds (DPK) have a positive and significant effect on Return on Assets (ROA). Meanwhile, the interbank liability variable has a negative and significant effect on Return on Assets (ROA). Simultaneously, spread interest rate, SBI, third party funds, and interbank liabilities influence ROA.

Capital Structure and Profitability of Commercial Banks in Nepal

The study intends to look into how capital structure affects a Nepalese commercial bank's profitability. The statistical analysis of the study includes the secondary data. Using software for analysis, Descriptive and a casual comparative analysis has conducted by gathering data from bank websites and using correlations and multiple regression models for hypothesis testing. Out of the entire population, 12 bank has taken as a sample for the study. The capital structure and profitability have been investigated as a cause and effect relationship using a casual comparative research design. In this study NIM is used as dependent variables, and leverage ratio, bank size, liquidity ratio, and capital ratio are independent variables. As a statistical tool, the following tools are used: mean, standard deviation, correlation, multiple regression model, and hypothesis testing. Excel and SPSS are both used to evaluate those variables. Leverage Ratio has a negative and significant impact with NIM on Nepal's commercial banks. Bank Size has remained negatively and insignificantly impacted with NIM. The Liquidity Ratio shows significantly and positively affects with NIM. The capital ratio has a significant and favorable impact on NIM. However, Banks should value the significance of other variables.

Climate change and the European banking sector: the effect of green technology adaptation and human capital

PurposeClimate change poses effect on banking sector’s risks and profitability through adaptation of green technology. This study aims to incorporates green technology adaptation in three sectors: green banking, green entrepreneurial innovation (EI) and green human resource (HR), in a model of bank’s performance. And determines the impact of climate change on bank risk and profitability.Design/methodology/approachAn assessment of profitability and risk profile of commercial banks is done for 27 European countries for 2013–2022, employing a two-step difference system-generalized method of moments estimation technique with a moderate effect of climate change by including interaction between climate change and green technology adaptation.FindingsThe results indicate that green banking increases profitability, reduces credit risk and increases liquidity risk. The results also show that green human resource increases profitability and becomes a source of credit and liquidity risks for the banks. Green EI increases credit risk and liquidity risk, while the effects of green EI on profitability vary with the use of two proxies: Green patents increase profitability and environment, social and corporate governance (ESG) scores decrease profitability.Practical implicationsSupportive government initiatives, including subsidies and tax rebates to green borrowers, may take the burden of green transition off the banking sector.Originality/valueThis paper observes the impact of green technology adaptation in three sectors: banks, EI and HR, moderated by climate change, adding substantially to the existing literature in conceptual framework and methodology.

Study on the Impact of Interest Rate Marketisation on the Profitability of Chinese Commercial Banks

Interest rates play a role in regulating the allocation of resources in the financial market and can be used as the price of money. In order to allow the market to play a fundamental role in resource allocation, the reform of the socialist market economy system has been gradually launched in China since the 1990s. From the establishment of the interbank lending market in 1996 to the reform of the interest rate quotation mechanism in the loan market in 2019, the marketisation of interest rates has played an important role in the independent allocation of resources in the financial market, and is getting closer and closer to achieving the ultimate goal of interest rate marketisation. However, as the pricing power is controlled by financial institutions, the competition among the banking sector has become more and more intense. According to the financial reports of listed banks, the operating situation of the banking industry is very tough, and the return on assets has been declining, leading to the transformation of major banks to achieve greater profitability. In general, exploring the impact of interest rate marketisation on the profitability of commercial banks helps to analyse the current situation of bank operations, improve the ability to cope with risks by finding new profit models, and occupy a favourable position in the competition in the financial market.This paper takes the impact of interest rate marketisation on the profitability of Chinese commercial banks as the object of research, by finding relevant literature, starting from relevant theories, and using internal and external factors to study its impact mechanism; and according to the reform history of China's interest rate marketisation, it analyses the trend of changes in the indexes of Chinese commercial banks to determine the impact of interest rate marketisation on the profitability of commercial banks; it also adopts the multivariate linear regression model, according to the regression analysis found that the interest rate marketisation has a strong impact on the profitability of commercial banks, but the change of the bank's income structure does not significantly improve the profitability; finally, the following conclusions are drawn: (1) the basis for the realisation of the interest rate marketisation is to improve the pricing system and open the interest rate conduction channel; (2) by optimising the income structure and improving the operational efficiency, the profitability of the bank can be improved; (3) by reasonable response to interest rate fluctuation risk and improving risk management ability, it can gain an advantage in the fierce market competition.

The Impact of Non-Interest Income on Commercial Bank Profitability in the Middle East and North Africa (MENA) Region

This study examines the effects of non-interest income on bank performance in the Middle East and North Africa (MENA) region, addressing existing research gaps and conflicting results. The analysis is based on data from 40 banks (5 banks from each country) operating in Bahrain, Egypt, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates between 2010 and 2022. Using correlation analysis and three regression models (OLS, FE, and RE), this study explores the relationship between non-interest income, overheads, capital adequacy, loan loss provision, bank size, and return on assets. The findings reveal positive associations among banks’ overhead, size, capital adequacy, and loan loss provision. Additionally, a favorable correlation is observed between non-interest income and bank performance. Non-interest income significantly influences the profitability of MENA region banks across all three models, supporting the main hypothesis. While the study’s limitations include sample size and geographic focus, the findings of this study provide valuable insights for policymakers, allowing them to recognize the positive impact of increasing non-interest income on commercial bank profitability in the MENA region and consider implementing policies that encourage and support banks in diversifying their income sources.

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.

The influence of financial technology on profitability in Jordanian commercial banks

The aim of this study is to identify the influence of Financial Technology (FinTech) on profitability in Jordanian commercial banks. The convenience sample was surveyed using a descriptive cross-sectional approach. Questionnaires were used to collect the data. The study population consists of commercial banks. The tool was sent to employees of all Jordanian commercial banks through email, Facebook and Twitter in order to meet the researchers' target sample size of at least 381 participants. The data was analyzed using the Statistical Package for Social Sciences (SPSS) version 24. The results showed an impact of financial technology (financing, money transfers and lending) on banks' profitability. The results of this study demonstrate that the adoption of FinTech solutions by banks has a significant impact on their profitability and position. Financing, money transfer and lending are crucial in determining a bank's profitability and overall success. Therefore, this study contributed to the growth of a new model that connects financial technology through financing, money transfers and lending to profitability and it added many topics related to financial accounting technology for increasing profitability in Jordanian commercial banks.

The influence of Natural Certainty Contract (NCC) and Natural Uncertainty Contract (NUC) financings on the financial sustainability of Islamic commercial banks in Indonesia

IntroductionResearch on Islamic banking in Indonesia has extensively addressed its performance and stability. However, studies on stability from the perspective of Natural Certainty Contract and Natural Uncertainty Contract financing have been relatively scarce.ObjectivesThis study measures how profitability mediates the impact of Natural Certainty Contract (NCC) financing and Natural Uncertainty Contract (NUC) financing on financial sustainability.MethodThe research utilizes secondary data obtained from quarterly reports for the periods I-IV of 2018-2022 on the official website of Sharia commercial banks. All Sharia commercial banks in Indonesia listed in the OJK for the period 2018-2022 constitute the population for this study, while the sample consists of Sharia commercial banks in Indonesia that meet the criteria. The sampling method employed is purposive sampling, resulting in eight Sharia commercial banks in Indonesia as the sample based on predetermined criteria.ResultsThe findings of this study indicate that NCC financing negatively influences profitability, NUC financing has no impact on profitability, NCC financing positively influences financial sustainability, NUC financing negatively influences financial sustainability, profitability (ROA) positively influences financial sustainability, NCC financing indirectly negatively affects financial sustainability through profitability, and NUC financing indirectly has no impact on financial sustainability through profitability.ImplicationsIslamic commercial banks should be more selective in financing allocation, focusing on options with lower risks. Furthermore, Islamic commercial banks should also manage financing effectively to minimize existing risks, thereby enhancing profitability.Originality/NoveltyThis study contributes to enrich studies in the field of Islamic finance with emphasize on Islamic commercial banks profitability and financial sustainability.

Impact of Monetary Policy on the Profitability of Nepalese Commercial Banks

This study examines the impact of monetary policy instruments on firm profitability in Nepalese commercial banks from 2007/08 to 2021/22. The research investigates the relationship between profitability and various monetary policy instruments, including broad money supply, statutory liquidity ratio, bank rate, investment in treasury bills, and cash reserve ratio. The analysis reveals diverse return on investment (ROI) trends across banks, with NIMBL initially showing high ROI followed by a drop, SBL and SBI displaying substantial increases, and NABIL and HBL maintaining stable ROI. Net Interest Margin (NIM) analysis shows varying profitability, while monetary policy indicators exhibit diverse and occasionally fluctuating values, influencing borrowing costs and liquidity. Correlation analysis identifies positive associations between NIM, M2, and ROI and negative correlations with TBR and CRR. Regression analysis emphasizes the significance of CRR, IRS, and M2 in impacting ROI. The study concludes that the cash reserve ratio, bank rate, and investment in treasury bills affect Nepalese commercial banks' profitability. Recommendations include managing the cash reserve ratio, maintaining low bank rates, encouraging treasury bill investment, and minimizing the statutory liquidity ratio to enhance profitability. Implications suggest that effective management of monetary policy instruments can improve banks' profitability. Future research could explore additional profitability indicators, expand the sample size and observation years, include other financial institutions, and employ a mixed-method approach for a comprehensive understanding of the impact of monetary policy instruments on bank profitability.

Analisis Pengaruh Kinerja Keuangan terhadap Profitabilitas pada Bank Umum Konvensional di Indonesia

Conventional commercial banks have an important role in the Indonesian economy by being a pillar in raising and distributing funds and providing various financial services to the public, a deep understanding of the financial performance of these banks is related to their level of profitability. This study aims to analyze the effect of financial performance on profitability in conventional commercial banks in Indonesia during the period 2018-2022. The data used in this study was obtained from the Indonesia Stock Exchange (IDX) with a sample of 16 conventional commercial banks and used panel data regression analysis techniques. The results of the analysis show that Net Interest Margin (NIM) has a positive and significant influence on Return on Assets (ROA) and Operating Expenses and Operating Income (BOPO) has a negative and significant influence on ROA. However, the variables Capital Adequacy Ratio (CAR), and Loan to Deposit Ratio (LDR) did not have a significant effect on ROA in 16 conventional commercial banks in Indonesia during the study period.

The Effect of Bank Performance and Macroeconomics on the Profitability of Indonesian Sharia Commercial Banks

The Effect of Bank Performance and Macroeconomics on the Profitability of Indonesian Sharia Commercial Banks

Impact of Credit Risk and Macroeconomic Variables on the Profitability of Commercial Banks in Nepal

This study was conducted to examine the impact of credit risk and macroeconomic variables on the profitability of commercial banks in Nepal. Return on assets and earnings per share of the banks were taken as regrassands. Whereas, as regressors, non-performing loan, capital adequacy ratio and credit to deposit ratio were taken as the proxies of credit risk, and GDP growth rate, consumer price index and base rate were studied as indicators of macroeconomic variables. Following simple random sampling techniques, 14 commercial banks were selected as sample for the study. The required quantitative data were retrived from annual financial reports of the banks. Data were analyzed on Gretl software. The Pearson correlation and Ordinary Lease Square model for regression resulted that the GDP growth rate was insignificant in defining the variation on return on assets. Likely, inflation and base rate were not significant in defining the variation on earning per share. Result of this study provided sufficient scope to bankers in developing their growth strategies.