Bank capital, profitability and risk in BRICS banking industry

Abstract

This paper analyses the relationship between bank capital, risk and profitability for the BRICS banking industry data from 2004 to 2012. We use a dynamic panel data model based on two-step GMM estimation procedure. For the sake of analysis, we differentiate between before and after crisis periods in order to highlight the impact of financial crisis on clearing up the above relationship. The main empirical results are summarised as follows: 1) capital and risk are significantly and negatively related, while capital and profitability are significantly and positively linked; 2) bank capital has the greatest positive impact on ROE measure of profitability for investment banks; 3) BRICS investment banks are likely associated with a more sound financial supervision and technology; 4) regulatory quality and institutional developments are dependent upon differences in profitability and risk; 5) Results also provide evidence that financial crisis affects considerably the relationship between capital, risk and profitability. 90W. Ben Jabra et al.