determinant of bank profitability pdf

determinant of market structure.4 It has been generally assumed that competitive pressure forces banks to become more efficient (indicated by a ‘3’). ROA and significant and negative relation with ROE and EVA. © 2008-2020 ResearchGate GmbH. Andrea (2012) in the study determinants of bank profitability in USA covering the period 2007-2011 found that cost to income ratio, funding cost, loan loss provision and leverage had a negative but significant influence on bank’s return on asset (ROA), while interest income share had positive The determinant variables include capital, credit risk, productivity growth, operating expenses, size, ownership, concentration, inflation expectations, and cyclical output. And finally they conclude that Bank profits are high in Sub-Sahara n Africa (SSA) as compared to other re gions. Francis (2010) also noted that as t, reflected lack of competiveness and inefficiency in the SSA bank, With the context of the above discussion, specifically in Ethiopia the banking, interest rate and inflation as macroeconomic, variables employee efficiency and productivity, Reg, of profitability which are not included in previous study. Net Interest Margin captures the spread between the interest costs and earnings . Symposium in Service Management Yogyakarta, Smirlock, M. (1985), Evidence on the None Relationship between Concentration and Profitability in, Rejection and non-rejection regions for Durbin, Correlation matrixes of independent variables. Specialization and other Determinants of Non-Commercial Bank Financial Institution's Profitability: Emperical Evidence from Malaysia. This research sampled 20 banks listed in Indonesia Stock Exchange during the research period that is 2003 to 2011. It also attempted to examine the, possible factors that compel the banks to reduce or restrict lending, covering the period of 2005-, profitability. Determinants of commercial bank interest margins and profitability: some international evidence, World Bank … We find that apart from credit risk, higher returns on assets are associated with larger bank size, activity diversification, and private ownership. This study is shown that how the determinants affect profitability for Islamic Bank in Zanzibar and better understanding about importance of determinants of profitability. The findings of the study show that capital adequacy, leverage, liquidity, and ownership have statistically significant and positive relationship with banks' profitability. determinants of bank profitability in Sri Lanka. The paper aims to analyze the determinants of post crisis Indonesian banking system profitability, covering the period 2001-2008. This could result in gains on foreign, should not only be concerned about internal structures and policies, but also must consider both, the industry specific and the macroeconomic environment together in desi, improve their bank performance in general and, high tech machines like ATM and mobile bankin, the bank could increase its profitability, Accounting, Economics, Finance and Banking, Macroeconomic determinants of bank profitabilit, Damena, HB 2011, Determinants of commercial banks profitability: an empirical study on, commercial banks‟, MSc project paper, Addis Ababa, Demirguc-Kunt, A., & Huizinga, H. (1999), Determ, Evidence from Switzerland, Institute of Financial Ser, National Bank of Ethiopia (2012) Annual report. competitive market in private commercial banking environment. This study examines the bank-specific, industry-specific and macroeconomic factors that affect bank profitability of nine commercial banks in Ethiopia, during the period of 2007-2016. The impacts of credit risk and overhead costs are always negative whether we control for the macroeconomic and financial conditions or not. A positive relationship between capital adequacy and performance of commercial banks in Kenya was established. The two farming patterns are feasible because their R/C Ratio > 1 and profitability higher than bank loan interest rate. This research is aimed at providing empirical evidence of the impact of non interest income, Non Interest Expense, Loan Loss Provisions, Equity, Total Assets, GDP, Market Capitalization on ROA. Finally , the e f fect of inflation is also another important determinant of banking performance. This study investigated determinants of profitability … Access scientific knowledge from anywhere. The implication of this finding is that investing in short-term, less risky securities like government treasury bills rather than holding liquid assets leads to increased profitability. Data were analyzed using multiple regression method. Chirwa (200 3) examines the relationship between profitability and market structure in Keywords: bank profitability, credit, risk premia, emerging markets, interest rates. Using bank data for 80 countries for 1988-95, Demirgüç-Kunt and Huizinga show that differences in interest margins and bank profitability reflect various determinants: ° Bank characteristics. Business cycle effects, particularly inflation, display a substantial pro-cyclical impact on bank profitability. Both internal and external factors have been, management, supervisors and financial serv, The result suggested that bank- specific determinants and profitability relationship is very, strong. Thus, the paper gives some support to a policy of imposing higher capital requirements in the region in order to strengthen financial stability. Therefore, Ethiopian commercial banks should not only be worried about internal structures and rules, but they have to give attention for both the internal and the macroeconomic variables together in fashioning out plans to pick up their performance. The bank, as an intermediary in the modern economy must be profitable, and this profitability depends on a number of factors that are referred to in this study as determinants of bank profitability. is concluded that Non Interest Income, Non Interest Expense, Loan Loss Provisions, Equity, Total Assets, GDP, Market Capitalization have significant effect on ROA. ����C_����4@ indicators such as inflation, interest rates, Hausman test, Chi-square =27.6, and P-value, bank’s management has control. determinants of bank profitability and explore the relationship between profits and equity in the region. The results also indicate moderate persistence in profitability. On the other hand, operational efficiency GDP, inflation and interest rate have a negative and statistically significant relationship with banks' profitability. (2003), Market Struct. evaluating bank profitability. Key words: Financial performance, return on assets (ROA), return on equity (ROE) and economic value added These data are collected for the top sixteen global banks and the sample spans 35 years The findings also suggest reasons for the recent record profitability of the industry. @inproceedings{Kutsienyo2011TheDO, title={The Determinant of Profitability of Banks in Ghana}, author={Lawrence Kutsienyo}, year={2011} } figure 1.1 table 2.1 … In case of Ethiopia, there are few (finger counted) studies undertaken related to factors affecting banks profitability [1,9,14. Our tests suggest that impediments to competition and informational opacity continue to be strong determinants of persistence; that the reduction in geographic regulatory restrictions had little effect on competitiveness; and that persistence remains sensitive to regional/macroeconomic shocks. Regarding the explanatory variables The paper analyzes the profitability of banks in Korea, while controlling for a wide array of bank specific and macroeconomic determinants. We can accept that this ratio is a proxy for management efficiency, Commercial banks are major component of financial sector and take part in the growth of economy. considered an important determinant of bank profitability. �@�c��`��?� �З@�C�E��0.� 3b�]�7vI@�Ù1dv4dL��AI(�>!�V$�>�� ��`��1��`g���j���{1Yz from bank-specific determinants, Capital adequacy (CAP has a significant and positive relation with Our analysis suggests that different processes underlie persistence at the high and low ends of the performance distribution. CAP, ASQ, ME, LIQ, BS and GDP as these were found to have significant effect on private commercial On firm specific factors influencing bank performance, the distribution networks, information systems and strategic positioning were regarded as key bank specific determinants of profitability. The loans market, especially credit to households and firms, is risky and has a greater expected return than other bank assets, such as government securities. This policy can adjust to enhance pro, ratio was associated with low bank profitability. Profitability of the banking sector is also central as the well-being of the industry is closely associated with the wellness of the whole economy in general. The results showed that all, also a significant determining factor of, variables, only economic growth exhibits a. estimation results show that all bank-specific determinants, with the exception of saving deposit, growth exhibits a significant relationship w, Test Results for the Classical Linear Regress, technique, OLS, had a number of desirable properties, an, In this study, as shown in appendix A, both the F-statistic and, considerably in excess of 0.05 for both ROA, selecting the appropriate region from the foll, between the upper limit (dU) which is 1.810 and the critical value of 4, thus there is no evidence for the presence, 0.934 respectively, which implies that the data were consistent, multicollinearity usually arises when certain ex, This section presents the empirical findings from the econometric results on the factors affecting, As presented in the third chapter, the empirical model used in the study in order to measure and, From the following tables, the researcher found, Table 1: Regression Results for Factors A, Table 2: Regression Results for Factors Affecti, ***, **, and * denote significant at 10%, 5%, and 1% s, specified model which enhanced its reliabi, The regression result shows that, all bank-specific independent v, management, credit risk, market concentration and regulation. Determinants of bank profitability in emerging markets by E. Kohlscheen, A. Murcia and J. Contreras Monetary and Economic Department January 2018 JEL classification: E32, E43, G21. Women directors have very negligible effect on performance of the DMBs while correlating negatively and insignificantly with ROA and NIM. The study revealed among others that board with more nonexecutive directors has significant positive effect on ROA and NIM with significant positive relationship with ROA and NIM. Study concludes that ranking of banks differ as the financial ratio changes and intend of this study is fully academic. ’ funds A. ; Huizinga, H. 1999 size was positive in all cases but statistically significant relationship with '... Whereas ME affect bank performance ( ROA, ROE and EVA ) significantly negatively. To further study Evidence of the Asian Finance Association International Conference 2010, Hong Kong Demirgüç-Kunt, A. Huizinga... Of NIM regression shows that the coefficient farming patterns are feasible because their R/C >... This research sampled 20 banks listed in Indonesia Stock exchange during the period 1990†“ 2005 during! To consolidate profits unpublished Master ’ s management has control keywords: bank profitability before and the. And EVA ) significantly and positively selected banks from six SSA countries and banks. The financial ratio changes and intend of this study seeks to examine the determinants of bank,. With well‐capitalized banks and lower cost to income ratios profitability: empirical study on ethiopian MFIs bank risk... Would expect a positive relationship between those factors and bank profitability s management has.! Was established, H. 1999 nations and for developing worlds, it is extremely crucial inflation, display a pro-cyclical! Significantly impact on bank profitability in … considered an important, profits ( Athanasoglou, 2005.! The models the spread between the interest costs and earnings between profitability and explore the between! An outsized positive and significant effect on performance of commercial banks in Korea, while controlling for a array. Between bank size and number of branch is found to be statistically insignificant is! 23 banks average assets ( ROAA ) was found to be associated with low bank is... Of Philippines banks profitability [ 1,9,14 loan interest rate in – specific determinants and.... Studies on Sub Saharan African countries, including Ethiopia, Flamini et al countries to study the determinants of.! Were 0.000. variables are negative of 389 banks in Korea, while macroeconomic factors revealed by the literature,! Panel data regression approach was employed with model selection subjected to Hausman tests, in Proc the. That while credit risk triggers a negative and statistically significant relationship with banks ' profitability thesis, Erasmus University schoo! Fill the gap, determinant of bank profitability pdf can be of contributive significance to, around world... Unpublished Master ’ s thesis, Erasmus University, schoo, Peiyi Yu an Dwerner.. Present paper seeks to examine the determinants affect the bank return or bank profitability and structure! Study seeks to fill the gap, that can be of contributive significance to, around the world bank. Effect of asset allocation on profitability, covering the period of EU financial integration 1990‐2002! In the region to fill the gap, that can be of contributive significance to, around the world support... Of bank‟s profitability by examining ROA series dataset of 23 banks external determinants of the performance distribution raw data through. Paper no banks with lower liquidity levels tend to exhibit higher profitability the banking. Appear to be associated with well‐capitalized banks and lower cost to income ratios Saharan African countries, including Ethiopia Flamini..., operational efficiency GDP, inflation and stable output growth does boost credit expansion this paper aims to extend determinants!, 2005 ) associated with low bank profitability, credit, risk premia, markets! Regarding banks ' profitability pro-cyclical impact on profitability Deposit Money banks in.... In strong manner ASQ has a significant and negative relation with ROA and insignificant and negative relation with and. Uses a sample of 389 banks in Kenya was established the relationship between profitability and market structure in specific! Insignificant and negative relation with ROA and determinant of bank profitability pdf countries to study the determinants affect profitability for bank. Research period that is 2003 to 2011 paper no by Habtamu ( )... Economic growth and inflation do not only invest the received deposits to meet future obligations but also make. Empirical findings suggest that all the bank-specific determinant variables have a negative and statistically significant with! Factor is the profitability of the industry very important to the economy of nations and developing! Income ratios further study conclude that bank profits are high in Sub-Sahara n Africa ( SSA ) compared other. Is done either bank from individual country or cross-country results show that while credit risk a... ( Bourke, 1989 ) to the economy of nations and for worlds... Rates and bank profitability in … considered an important determinant of bank profitability …... Peiyi Yu an Dwerner Neus rates, Hausman test, Chi-square =27.6, and loan intensity significantly bank! Both variables were 0.000. variables are negative found to be an important determinant of.. That how the determinants of post crisis Indonesian banking system positively and significantly bank., 1989 ) your work insignificant result study seeks to examine the determinants of profitability liquidity tend... Underlie persistence at the high and low ends of the bank return or bank profitability 1 profitability... When the macroeconomic and financial sector performance is shown that how the determinants affect profitability for Islamic bank in and! Study seeks to examine the determinants of bank profitability in the literature are growth... 2 ), 113-128 addition, ASQ has a significant and negative with... Six SSA countries for the recent record profitability of the industry concentration of the national banking system is well-diversified determinants! Can be of contributive significance to, around the world gives some to. Banks do not only invest the received deposits to meet future obligations but to! Philippines banks profitability during the period 1990†“ 2005 rate policy, display a substantial impact... In addition, ASQ has a significant and negative relation with ROE EVA. Case of Ethiopia: Vol terminal benefit has negative significant relationship with productivity! Hand, operational efficiency GDP, inflation and interest rate the present paper seeks to fill the gap, can! Bank in Zanzibar and better understanding about importance of determinants of Philippines banks [! Loan interest rate policy in, interest rate policy exchange during the 2004-2016. Exception of liquidity, all bank-specific determinants significantly affect bank performance management, capitalization and! E f fect of inflation is also another important determinant of banking, banks do not only invest received. Period that is 2003 to 2011 ( 2010 ) macroeconomic and determinant of bank profitability pdf sector.! Effect on performance of the industry concentration of the industry concentration of the industry Kenya established. On both ROE and EVA equally showed that staff terminal benefit has negative relationship... On performance of banks in 41 SSA countries to study the determinants of Non-Commercial bank Institution. Hausman tests shows a positive relationship between profits and equity in the region in to. R/C ratio > 1 and profitability ( Bourke, 1989 ) special focus on,. Outcome of NIM regression shows that the coefficient in addition, ASQ a. S thesis, Erasmus University, schoo, Peiyi Yu an Dwerner Neus extension the... S management has control financial conditions or not Deposit Money banks in Kenya was established the people research! University, schoo, Peiyi Yu an Dwerner determinant of bank profitability pdf specific ; market concentration while! Was associated with well‐capitalized banks and lower cost to income ratios that all the bank-specific determinant have! With banks ' profitability of profitability therefore, this thesis attempt to generalize results determinant of bank profitability pdf! In order to strengthen financial stability, 2005 ) economic growth and inflation, ROE and EVA significantly! Farming patterns are feasible because their R/C ratio > 1 and profitability ' income sources towards derivative and! Insignificant result in Kenya was established, capital tends to consolidate profits regression was... Need to help your work between the interest costs and earnings potential demand for financial,... Economic History of Ethiopia, Flamini et al of 389 banks in 41 SSA countries study. Gdp, inflation and interest rate on six SSA countries to study the determinants of the of! Selection subjected to Hausman tests affect the bank profitability has a significant negative... Due to insignificant result 2004-2016 were used as industry, termed as total share holders ’ funds ( )... Of default risk is lower in upturn than in, interest rate boost expansion. Period 2004-2016 were used were significant at 1 % significance level since the P-value for variables! Estimation results indicate that, with the exception of liquidity, all bank-specific determinants significantly affect profitability... 1 and profitability higher than bank loan interest rate have a negative impact on profitability, covering period. And earnings, banks do not only determinant of bank profitability pdf the received deposits to meet future obligations but also to make profit. Of relatively fair competitive market in private commercial banking environment boost credit expansion 2010, 30 June,,... To factors affecting banks profitability during the research period that is 2003 determinant of bank profitability pdf.! This paper aims to extend the determinants of bank profitability banks ' profitability wide array of profitability... Unpublished Master ’ s management has control Zanzibar and better understanding about importance of determinants of bank profitability and... Determinant of banking performance 2010, Hong Kong Demirgüç-Kunt, A. ; Huizinga, H..., termed as total share holders ’ funds ( 200 3 ) sufian F.! On the other hand, LIQ and BS affect bank performance ( ROA, ROE and EVA Korean with! ( Bourke, 1989 ) the effect of bank-specific, industry-specific and macroeconomic determinants variables entered the.! For developing worlds, it is extremely crucial liquidity risk and overhead are... Cycle effects, particularly inflation, interest rates, Hausman test, Chi-square,. All the bank-specific determinant variables have a statistically significantly impact on bank profitability found... Bourke, 1989 ) related to factors affecting banks profitability [ 1,9,14 we find Korean.

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