The main purpose of this study is to measure up to what extent the independent factors defined by capital adequacy ratio, non-performing loans ratio, cost-income ratio, liquidity ratio, and loans-to-deposits ratio impact the financial performance of sixteen commercial banks operating in the United Arab Emirates using panel data for the period of 2013-2019. The secondary data was collected from banks and examined by applying standard descriptive statistics and the random effect model for hypothesis testing. It is concluded from the regression outcomes that non-performing loans ratio and cost-income ratio have a significant negative impact on commercial banks profitability in the United Arab Emirates, while capital adequacy ratio, liquidity ratio, and loans -to-deposits ratio all have a very weak positive relationship on the return on assets but they are not determinants of bank’s profitability due to the insignificant statistical impact on it. It is therefore suggested that to enhance financial performance and minimize the risk of non-performing loans in the future, banks must watch very carefully the loans’ performance and analyze thoroughly the clients’ credit history and ability to pay back their debts prior to any approval of loan applications. Furthermore, banks should continuously improve their assets utilization, liquidity, and techniques of managing operating costs, improve the impact of capital adequacy, and the use of deposits for lending activities from a weak positive impact to a significant positive impact on their profitability. The researchers recommend that future studies on credit risk management influence on banks’ financial performance should consider more independent variables and longer periods of study such as twenty or thirty years to have more accuracy and generalized results.
This study attempts to identify the Bank Specific and Macro-economic Determinants of The United Arab Emirates Commercial Banks Profitability measured by Return on Assets, Return on Equity and Net Interest Margin. The study uses bank-specificand microeconomic factors as independentvariables. The bank-specific factors include bank size, capital adequacy, assets quality, liquidity, deposits, diversification ,business mix, and efficiency, while the macroeconomic factors include real Gross Domestic Product growth, Inflation Rate, and Real Interest Rate.Regression models were used to relate bank profitability ratios to the independent variables built on panel data for the period 2013-2019 of sixteen commercial banks operating in the United Arab Emirates.The results of the study show thatassetsize, liquidity, off-balance sheet activities, and diversification have significant impact on profitability as measured by theNet Interest Margin. In addition, loans under follow-up to total loans, and managerial efficiency are found to behighlysignificantvariables of profitability in the context of the United Arab Emirates commercial banks as measured by Return on Assets and Return on Equity. Furthermore, diversification has a significant impact on profitability as measured by Return on Assets. The remaining bank-specific factors (capital adequacy, loans to total assets, liquidity, deposits to assets ratio, and operating expenses to total assets ratio) and macroeconomic factors have no significant effect on bank profitability. The results of the study suggest that banks can improve their profitability through maintaining high operating income, decreasing the size of non-performing loans, full utilization of liquid assets, more concentration on the main activities, efficiently managing their operating expenses, and taking advantage of the Gross Domestic Productgrowth , inflation and Interest Rate changes to improve the banks performance and profitability. In addition, it is recommended to make further studies on the banks performance with an expanded scope which is tobe extended to other industries.
This study attempts to define the bank-specific and macroeconomic determinants of non-performing loans in sixteen conventional banks operating in the United Arab Emirates during the period 2013-2019. The study analyzed the data from banks' annual reports and data streams database where standard descriptive statistics and random effect model for hypothesis testing were used. The independent variables were regressed against non-performing loans ratio by using GRETL statistical tool. The study concluded that the determinants of the non-performing loans were the Return on Assets that had significant negative relationship with the non-performing loans, and Liquidity, and Loans to Deposits Ratios that had significant positive relationship. However, other bank-specific and macroeconomic factors were not a determinant of non-Performing Loans Ratio. Therefore, this study suggests that conventional banks in United Arab Emirates must develop new investments instruments as major source of income rather than relying heavily on lending activities. Additionally, it is especially important to improve the management efficiency of the operating expenses and keep good assets quality. Furthermore, this study suggests measuring the impact of more variables on the non-Performing Loans for longer period of study to have more accuracy and results' generalizations.
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