The Effect of Bank Specific and Macroeconomic Determinants of Banking Profitability: A Study on Bangladesh

Noman, Abu Hanifa Md.; Chowdhury, Mustafa Manir; Chowdhury, Najneen Jahan; Kabir, Mohammad Jonaed; Pervin, Sajeda

doi:10.5539/ijbm.v10n6p287

Cited by 66 publications

(97 citation statements)

References 29 publications

(69 reference statements)

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“…They used the GMM approach and results showed that the capital adequacy ratio has a positive influence on bank profitability for BRICS countries. Chowdhury (2015); Noman et al (2015) and Ozili (2016) also reached a similar conclusion by using the same method in their studies. Moreover, by using regression analysis, Molyneux and Thornton (1992); Abreu and Mendes (2001); Dawood (2014); Pradhan and Shrestha (2016) and Khatun and Siddiqui (2016) identified capital adequacy as the most important factor which influences bank profitability.…”

Section: Buchory (2015) Indonesia Regressionsupporting

confidence: 59%

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Determinants of Profitability in the Banking Sector: An Analysis of Post-Soviet Countries

et al. 2018

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Abstract:The purpose of this paper is to identify the determinants of bank profitability in 13 post-Soviet countries. Within this scope, annual data between 1996 and 2016 is analyzed by using fixed effects panel regression and the Generalized Method of Moments (GMM). It is concluded that loan amount, non-interest income and economic growth are significant indicators of profitability. Moreover, the 2008 global mortgage crisis has a negative influence on bank profitability in post-Soviet countries. According to the estimation results, there is a positive relationship between non-interest income and economic growth with profitability. This result shows that when non-interest income of the banks increases, such as credit card fees and commission, it affects the financial performance of the banks, positively, and contributes to bank profitability. Another result of this study is that economic growth positively influences bank profitability. This result allows us to conclude that higher GDP comes with higher bank profitability for post-Soviet countries. Lastly, there is a negative relationship between loan-to-GDP ratio and profitability of the banks in post-Soviet countries. This means that when the ratio of total loans to GDP increases, it affects financial performance of the banks in a negative way. While considering this result, it is recommended that banks in post-Soviet countries should focus on ways to increase their non-interest income. Additionally, it is also significant for these banks to be careful and risk averse when lending to their customers.

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Section: Buchory (2015) Indonesia Regressionsupporting

confidence: 59%

“…Noman et al (2015) Bangladesh GMM Defined that real interest rate affects the probability of the banks negatively whereas capital adequacy, size and inflation rate have a positive influence. In addition to these, some studies indicated the relationship between economic growth and bank profitability.…”

Section: Buchory (2015) Indonesia Regressionmentioning

confidence: 99%

Determinants of Profitability in the Banking Sector: An Analysis of Post-Soviet Countries

et al. 2018

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“…This finding implies that banks with higher CAR are more profitable. The positive relationship between CAR and ROA is consistent with the results of Noman et al (2015). The estimated coefficient of the BURD is statistically significant and negative, which implies that increases in banks' non-interest expense decrease banks' financial performance.…”

Section: Resultssupporting

confidence: 78%

“…The positive relationship between the inflation rate and banks' performance suggests that in periods of high inflation, banks control interest rate changes which may lead to profit generation and, thus, in turn, affects banks' profitability positively. The positive impact of inflation on the performance of banks has also been reported by some previous studies like Noman et al (2015) and Wasiuzzaman and Tarmizi (2010). On the other hand, Kanwal and Nadeem (2013) found the negative effect of the rate of inflation on banks' performance.…”

Section: Results Of Banks' Performance Modelsupporting

confidence: 49%

“…Regarding the effects of macroeconomic conditions, they found that only the rate of inflation affects banks' NIM and ROA significantly. Another study by Noman, Chowdhury, Chowdhury, Kabir, and Pervin (2015) reported that the profitability of banks appeared to be significantly affected by the Credit Risk (CR), cost efficiency, bank size, and the CAR. The authors further found that both the real interest rate and GDP appeared to have a significant effect on bank profitability.…”

Section: Literature Reviewmentioning

confidence: 99%

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Impacts of Inflation and Interest Rate Uncertainty on Performance and Solvency of Conventional and Islamic Banks in Pakistan

Rashid

Khalid²

2017

J. Islam. bus. manag.

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Abstract. This paper examines the effects of inflation and real interest rate uncertainty on the performance and solvency of banks in Pakistan. It also examines whether the effect of both types of uncertainty differs for conventional and Islamic banks. Annual data covering the period 2008-2015 for a sample of 25 banks are used to carry out the empirical analysis. Generalized Least Square (GLS) estimator is applied to overcome the problem of heteroscedasticity. The results indicate that several bank-specific variables are important in determining the performance and solvency of banks operating in Pakistan. The results also show that these variables have considerable differential impacts on the financial performance and solvency of both conventional and Islamic banks. With regard to the effects of macroeconomic variables, the results show that the rate of inflation, the interest rate, and their volatility also have quite different effects on the performance and solvency of conventional and Islamic banks. We find that although neither inflation nor interest rate uncertainty significantly affect the solvency of conventional banks, the solvency of Islamic banks is significantly affected by both types of uncertainty. Specifically, we find that inflation uncertainty has a negative, whereas, the uncertainty associated with the real interest rate has a significant positive impact on the solvency of Islamic banks. However, both types of uncertainty have a statistically insignificant effect on the financial performance of both conventional and Islamic banks in Pakistan. Providing significance evidence on the bank-specific empirical determinants, our analysis helps bank managers to improve their banks' financial performance and solvency. Further, our findings are helpful for understanding how the financial performance and financial soundness of conventional and Islamic banks are determined during periods of heightened inflation and real interest rate uncertainty.

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Capital, liquidity, and profitability in European banks

Adelopo

Vichou

Cheung

2021

J Corp Accounting Finance

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The research aims to investigate the impact of increased capital requirements and high liquidity levels on the profitability of European banks in the post crisis period. The study examines the largest banks in the European Union spanning 28 countries using data from 2010 to 2018. It used three measures to define bank profitability: return on average assets, return on average equity, and operating profit to risk weighted assets. Capital, liquidity, size, and asset quality represent bank specific determinants, while economic growth and inflation are considered as the main external determinants having influence on profitability. We used multiple regression models to analyze the association amongst the variables. The results revealed a positive and significant association between liquidity level and bank performance. Asset quality showed a negative and statistically significant influence on bank performance, while economic growth and inflation have no significant influence on bank performance. The study concludes that there is limited influence of the Basel III on bank profitability although the policy is important in achieving banking stability. This study contributes to the literature by empirically analyzing the impact of capital regulation on bank performance for the biggest banks in Europe. Although the Basel III framework is important for prudential banking, its effects on the performance of European bank is debatable.

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The Effect of Bank Specific and Macroeconomic Determinants of Banking Profitability: A Study on Bangladesh

Cited by 66 publications

References 29 publications

Determinants of Profitability in the Banking Sector: An Analysis of Post-Soviet Countries

Determinants of Profitability in the Banking Sector: An Analysis of Post-Soviet Countries

Impacts of Inflation and Interest Rate Uncertainty on Performance and Solvency of Conventional and Islamic Banks in Pakistan

Capital, liquidity, and profitability in European banks

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