The determinants of bank profitability of GCC: The role of bank liquidity as moderating variable—Further analysis

Abstract

The motivation of this study stems from the mixed views concerning the determinants of bank profitability and the moderating role of bank liquidity in the relationship. The study primarily aims to investigate the bank profitability determinants among GCC nations. Data are obtained from the GCC banks for the period from 2000 to 2018, and then data are analysed using ordinary least squares (OLS) regression. On the basis of the obtained findings, the size of the bank and the management of assets significantly impact the GCC banks' performance. In addition, bank liquidity has a moderating role in the relationship between capital adequacy and assets quality, and GCC banks' performance. Further analysis shows that the bank's profitability score has a positive association. In addition, bank liquidity has a positive moderate effect relationship between the bank's profitability score and the GCC bank's performance. This study provides implications for the bank profitability determinants in emerging economies, within which there is common profitability, and this is expected to assist policymakers, regulators and shareholders in discerning the banks' attractiveness towards investors.

Determinants of Financial Performance in the Banking Sector: A Case Study of Listed Kuwaiti Banks

“…Leverage ratio is calculated as liabilities divided by assets. Some studies posit that higher leverage ratios increase the earnings of banks significantly (Al-Matari, 2021;Haddad & Alali, 2021), while some other studies put forward the opposite, i.e., a negative correlation between leverage and financial performance (Hakimi, Rachdi, Mokni, & Hssini, 2018;Rehman et al, 2022). In this study, it is expected that leverage negatively impacts the profitability of listed Kuwaiti banks.…”

“…Most previous studies confirm that large banks are more profitable than smaller-sized banks (Alharthi, 2017b;Alshammari, 2021;Başar et al, 2021;Boussaada & Hakimi, 2021;Rehman, Aslam, & Iqbal, 2022;Saadaoui & Mokdadi, 2022). In contrast, a few studies argue that a smaller total assets value leads to larger earnings (Al-Matari, 2021). Guillén, Rengifo, and Ozsoz (2014) examined the indicators of profitability in Latin America throughout 1989-2005. In this study, it was found that the correlation between bank size and profitability ratios is significant and positive.…”

“…Therefore, this study examines the impact of the COVID-19 pandemic on profitability in the Kuwaiti banking sector. There are many studies in the literature that examine the determinants of profitability in the banking sector (Al-Matari, 2021;Alshammari, 2021;Boussaada & Hakimi, 2021;Haddad & Alali, 2021) but none of these studies examine the effects of the COVID-19 pandemic on the profitability of banks. Thus, this study explores the correlation between the COVID-19 pandemic and the profitability of banks listed on Boursa Kuwait, the Kuwaiti stock exchange.…”

Do business strategies vary across firms in the banking industry? New perspectives from the bank size–profitability nexus

“…T A B L E 5 : slope homogeneity test It implies that these two banks enjoy large size-related benefits such as market power, operational and efficiency gains, and economic rents emanating enhanced bargaining power due to their large size which spur an increase in profitability (Al-Matari, 2021;Noone et al, 2022;Olaniyi, Olayemi, et al, 2017) and scope as they experience an increase in their sizes. The increase in size enables them to spread their fixed costs over their assets' bases, which subsequently triggers a decline in average cost (Kendo & Tchakounte, 2022;Kumar & Baag, 2022;Olaniyi, Olayemi, et al, 2017;Regehr & Sengupta, 2016;Sanyaolu et al, 2019;Srivastava & Upadhyay, 2019), and thereby a rise in profitability.…”

“…It equally results from greater scale and is also capable of propelling better and more enhanced bargaining power. Also, as banks grow in size, they can spread their fixed costs across a larger asset base, resulting in lower average costs and economies of scale (Al-Matari, 2021;Emeka, 2021;Le Thi Kim et al, 2021;Mwangi, 2018;O'Connell, 2022;Olaniyi, Olayemi, et al, 2017;Regehr & Sengupta, 2016;Sanyaolu et al, 2019;Srivastava & Upadhyay, 2019).…”