scholarly journals Impact of financial development on bank profitability

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Peterson K. Ozili ◽  
Honour Ndah
Keyword(s):  
Financial Development ◽  
Banking Sector ◽  
Generalized Method Of Moments ◽  
Negative Relationship ◽  
Financial System ◽  
Bank Profitability ◽  
Content Type ◽  
Interest Income ◽  
The Impact ◽  
Asset Managers

PurposeThis paper investigates the effect of financial development on bank profitability. The authors examine whether financial development is an important determinant of bank profitability.Design/methodology/approachThe ordinary least square and the generalized method of moments regression methods were used to analyze the impact of financial development on the profitability of the Nigerian banking sector.FindingsThe authors find a significant negative relationship between the financial system deposits to GDP ratio and the non-interest income of Nigerian banks. This indicates that higher financial system deposits to GDP depresses the non-interest income of Nigerian banks. The result implies that the larger the size of the Nigerian financial system, the lower the profitability of banks in Nigeria. Also, the authors observe that bank concentration, nonperforming loans, cost efficiency and the level of inflation are significant determinants of the profitability of Nigerian banks.Practical implicationsIt is recommended that regulators should establish market-enabling policies that encourage new banks to emerge in the banking industry. The entry of new banks can lead to increase in financial system deposits and credit supply for economic growth. Regulators also need to understand the role of Nigerian banks in promoting financial development and find ways to collaborate with banks towards financial sector development. Another implication of the findings for asset managers is that asset managers will need to take into account the prevailing level of financial development, particularly the size of the financial system, in their asset pricing and investment decisions. This will ensure that investors get value for their investments in Nigeria. The financial implication of the study is that the level of financial development in Nigeria can improve the finance-growth linkages in Nigeria through the efficient allocation of credit and capital to crucial sectors of the Nigerian economy to spur growth in those sectors.Originality/valueEvidence dealing with how financial development affects the profitability of the banking sector in African countries is scarce in the literature, and is completely absent for Nigeria. This paper addresses this research gap.

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

Economies ◽  
2018 ◽  
Vol 6 (3) ◽  
pp. 41 ◽  
Author(s):  
Serhat Yüksel ◽  
Shahriyar Mukhtarov ◽  
Elvin Mammadov ◽  
Mustafa Özsarı
Keyword(s):  
Economic Growth ◽  
Financial Performance ◽  
Credit Card ◽  
Fixed Effects ◽  
Banking Sector ◽  
Generalized Method Of Moments ◽  
Negative Relationship ◽  
Annual Data ◽  
Bank Profitability ◽  
Interest Income

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.

Does Bank Profitability Stimulate Economic Growth in the Arab Region?

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Omar Ghazy Aziz
Keyword(s):  
Financial Development ◽  
Method Of Moments ◽  
Positive Impact ◽  
Generalized Method Of Moments ◽  
Arab Countries ◽  
Return On Assets ◽  
Bank Profitability ◽  
Arab Region ◽  
Return On Equity ◽  
The Impact

AbstractThis study empirically investigates the impact of bank profitability, as a complementary measure of financial development, on growth in the Arab countries between 1985 and 2016. Using a generalized method of moments (GMM) estimation to test the impact of the bank profitability on growth, this study utilises two variables in the econometric model which are return on assets and return on equity. This study reveals that both variables of bank profitability are positive and significant. This confirms that the bank profitability, beside other financial development variables, has positive impact on the growth. This study points out some important implications based on this result.

The impact of globalization on the performance of Banks in South Africa

2016 ◽  
Vol 26 (4) ◽  
pp. 517-542 ◽  
Author(s):  
Fadzlan Sufian ◽  
Fakarudin Kamarudin
Keyword(s):  
South Africa ◽  
Host Country ◽  
Banking Sector ◽  
Generalized Method Of Moments ◽  
Estimation Method ◽  
Bank Performance ◽  
Content Type ◽  
Multinational Banks ◽  
Dynamic Panel Regression ◽  
The Impact

Purpose This paper aims to provide empirical evidence for the impact globalization has had on the performance of the banking sector in South Africa. In addition, this study also investigates bank-specific characteristics and macroeconomic conditions that may influence the performance of the banking sector. Design/methodology/approach The authors use data collected for all commercial banks in South Africa between 1998 and 2012. The ratio of return on assets was used to measure bank performance. They then used the dynamic panel regression with the generalized method of moments as an estimation method to investigate the potential determinants and the impact of globalization on bank performance. Findings Positive impact of greater economic integration and trade movements of the host country, while greater social globalization in the host country tends to exert negative influence on bank profitability. The results show that banks originating from the relatively more economically globalized countries tend to perform better, while banks headquartered in countries with greater social and political globalizations tend to exhibit lower profitability levels. Originality/value An empirical model was developed that allows for the performance of multinational banks to depend on internal and external factors. Moreover, unlike the previous studies on bank performance, in this empirical analysis, we control for the different dimensions of globalizations while taking into account the origins of the multinational banks. The procedure allows us to test for the home field, the liability of foreignness and global advantage hypotheses to deduce further insights into the prospects of banking across borders.

Assessing the bank profitability in the MENA region

2014 ◽  
Vol 7 (3) ◽  
pp. 305-332 ◽  
Author(s):  
Rim Ben Selma Mokni ◽  
Houssem Rachdi
Keyword(s):  
Method Of Moments ◽  
North Africa ◽  
Banking Sector ◽  
Middle Eastern ◽  
Generalized Method Of Moments ◽  
Mena Region ◽  
Bank Profitability ◽  
Content Type ◽  
Conventional Banks ◽  
Econometric Technique

Purpose – Which of the banking stream is relatively more profitable in Middle Eastern and North Africa (MENA) region? Design/methodology/approach – The empirical study covers a sample of 15 conventional and 15 Islamic banks for the period 2002-2009.The authors estimate models using the generalized method of moments in system, of Blundell and Bond (1998). They exploit an up-to-date econometric technique which takes into consideration the issue of endogeneity of regressors to evaluate the comparative profitability of Islamic and conventional banks in the MENA region. Findings – Empirical analysis results show that the determinants’ significance varies between Islamic and conventional banks. Profitability seems to be quite persistent in the MENA region reflecting a higher degree of government intervention and may signal barriers to competition. Originality/value – The main interest is to develop a comprehensive model that integrates macroeconomic, industry-specific and bank-specific determinants. The paper makes comparison of the performance between two different banking systems in the MENA region. The authors consider a variable crisis to gain additional insights into the impacts of the financial crisis on MENA banking sector.

The relationship between financial development and effectiveness of monetary policy: new evidence from ASEAN-3 countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zulkefly Abdul Karim ◽  
Danie Eirieswanty Kamal Basa ◽  
Bakri Abdul Karim
Keyword(s):  
Monetary Policy ◽  
Money Supply ◽  
Financial Development ◽  
Open Economy ◽  
Banking Sector ◽  
Financial System ◽  
The Philippines ◽  
Output Growth ◽  
Content Type ◽  
The Relationship

Purpose This paper aims to investigate the relationship between financial development (FD) and monetary policy effectiveness (MPE) on output and inflation in ASEAN-3 countries (Singapore, Malaysia and the Philippines). Design/methodology/approach This study uses an open economy structural vector autoregressive model to generate MPE. Then, an autoregressive distributed lagged (ARDL) model is used to analyze the effect of FD on MPE across countries. Findings The findings revealed that FD plays a different role in MPE across countries. In Malaysia, a more developed financial system tends to reduce the MPE on output, whereas in Singapore, results show that the more developed financial system (stock market capitalization) tends to increase MPE on output. However, in the Philippines, the main results show that the effect of FD (liquid liabilities) upon MPE on output is depending on the policy variable (interest rates or money supply). Originality/value This paper fills this gap by providing the first study of ASEAN-3 countries in examining how effective is a monetary policy in response to the development of the financial market across the country. Second, this paper considers two FD indicators, namely, the banking sector and capital market development in investigating its effect on MPE on output and inflation. Third, the authors construct the MPE in each country using a structural (identified) VAR model by aggregating the response of output growth and inflation rate on monetary policy changes (interest rate and money supply) using impulse–response function. Regarding this, the results of this study provide new empirical evidence and insight into the long debate on the relationship between FD and the MPE.

Financial development, human capital and its impact on economic growth of emerging countries

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Aaqib Sarwar ◽  
Muhammad Asif Khan ◽  
Zahid Sarwar ◽  
Wajid Khan
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Financial Development ◽  
Emerging Economies ◽  
Generalized Method Of Moments ◽  
Emerging Countries ◽  
Data Set ◽  
Content Type ◽  
The World ◽  
The Impact

Purpose This paper aims to investigate the critical aspect of financial development, human capital and their interactive term on economic growth from the perspective of emerging economies. Design/methodology/approach Data set ranged from 2002 to 2017 of 83 emerging countries used in this research and collected from world development indicators of the World Bank. The two-step system generalized method of moments is used to conduct this research within the endogenous growth model while controlling time and country-specific effects. Findings The findings of the study indicate that financial development has a positive and significant effect on economic growth. In emerging countries, human capital also has a positive impact on economic growth. Financial development and human capital interactively affect economic growth for emerging economies positively and significantly. Research limitations/implications The data set is limited to 83 emerging countries of the world. The time period for the study is 2002 to 2017. Originality/value This research contributes to the existing literature on human capital, financial development and economic growth. Limited research has been conducted on the impact of financial development and human capital on economic growth.

The effects of board experience and independence on mitigating agency conflict

2017 ◽  
Vol 7 (4) ◽  
pp. 445-467
Author(s):  
Ebenezer Agyemang Badu ◽  
Kingsley Opoku Appiah
Keyword(s):  
Resource Dependence ◽  
Generalized Method Of Moments ◽  
Negative Relationship ◽  
Board Independence ◽  
Corporate Board ◽  
Data Set ◽  
Content Type ◽  
Agency Conflict ◽  
Human And Social Capital ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of board experience and independence on mitigating agency conflict between shareholders and managers. Design/methodology/approach This paper uses a panel data of 137 firms listed on stock exchanges in Ghana and Nigeria over a period of seven years. System generalized method of moments and other estimation techniques were adopted for the study. Using agency and resource dependence theories, board experience and independence ignored in previous studies are selected for the study. Findings The findings of this paper indicate a negative and statistically significant relationship between board experience, board independence, and agency conflict. A further examination using an agency score computed from the principal factor analysis of the four main agency proxies indicates a significant and negative relationship between board independence and agency conflict, but a negative and statistically non-significant relation between board experience and agency conflict. Practical implications The authors’ evidence has important implications for countries that are currently or contemplating pursuing board reforms to recommend the appointment of more independent and experience directors to corporate board. Originality/value This paper introduces a new proxy for assessing human and social capital of directors to test the integration hypothesis of a unique data set from Ghana and Nigeria toward mitigating agency conflict.

Determinants of bank profitability: evidence from 47 Asian countries

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdulazeez Y.H. Saif-Alyousfi
Keyword(s):  
Opportunity Cost ◽  
Banking Sector ◽  
Balance Sheet ◽  
Asian Countries ◽  
Dynamic Panel ◽  
Bank Profitability ◽  
Content Type ◽  
Estimation Techniques ◽  
Demand Deposits ◽  
The Impact

PurposeThe paper examines the effect of bank-specific, financial structure and macroeconomic factors on the profitability of banks in Asian economies during 1995–2017.Design/methodology/approachIt uses the data of 2,446 banks across 47 Asian countries between 1995 and 2017 (41,582 year observations). The static and dynamic panel generalized methods of moments (GMM) estimation techniques are applied.FindingsThe results show that banks that are highly dependent on nontraditional activities have lower net interest revenue and net interest margin but higher return on assets, return on equity and profit before tax. Higher opportunity cost, capitalization, demand deposits and market risk result in a better bank profits. Furthermore, banks with higher loan exposure and growth have more profit. However, nonperforming loans have negative and significant impact on bank profitability. Asian banks do not suffer from diseconomies of scale and scope. The author also finds that banks located in countries with high gross domestic product, inflation rates and high rates of interest or in financially developed economies offer better profits. High credit to the private sector reduces the bank profitability. This study finds evidence to support the structure-conduct-performance (SCP) hypothesis. It also provides evidence that the impact of financial turmoil on the profitability of the Asian banking sector is negative and significant and has severely weakened the Asian banking system.Originality/valueAs Asia has become an important economic area and the Asian topic has not earned enough discussions, this paper is the first to examine Asian banks with the latest and a wider range of panel data that cover 2,446 banks at 47 Asian countries over the period 1995–2017. The present study is among the first to address the influence of financial turmoil on bank profitability in this region. It also studies new variables, such as demand deposits, opportunity cost and off-balance sheet activities, which have not been examined in relation to bank profitability. It also applies both static techniques and dynamic panel estimation techniques to analyze the data.

The role of technical efficiency, market competition and risk in the banking performance in G20 countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yaoteng Zhao ◽  
Supat Chupradit ◽  
Marria Hassan ◽  
Sadaf Soudagar ◽  
Alaa Mohamd Shoukry ◽  
...  
Keyword(s):  
Technical Efficiency ◽  
Economic Performance ◽  
Banking Sector ◽  
Market Competition ◽  
Generalized Method Of Moments ◽  
Content Type ◽  
Banking Institutions ◽  
Sector Performance ◽  
The Impact ◽  
Risk Element

PurposeRecently, the financial sector has faced significant challenges regarding the market competition, its technical efficiency and risk factors around the globe and gain recent researchers' intentions. Thus, the present study aims to examine the impact of technical efficiency, market competition and risk in banking performance in Group of Twenty (G20) countries.Design/methodology/approachData have been obtained from the World Development Indicator from 2008 to 2019. For analysis purpose, random effect model and generalized method of moments (GMMs) have been executed using Stata.FindingsThe results revealed that market competition and banks' capital efficiency have a positive impact on banking performance, while banks' lending efficiency and non-performing loans have a negative association with the banking sector performance of G20 countries. These outcomes provide the guidelines to the regulators that they should formulate the effective policies related to the lending practices and non-performing loans that could improve the banking sector performance worldwide.Research limitations/implicationsThe study has examined only three economic factors like the technical efficiency rate, market competition and risk element, and their influences on banking institutions' operational and economic performance. But the analysis has proved that except these factors, several factors affect banking institutions' operational and economic performance. Thus, future scholars recommend they analyze all the banking sector areas, pick more factors and enlighten their operational and economic performance influences. Moreover, the author of this article has chosen a particular source for collecting data to meet his study's objective. Only a single piece of software has been applied to analyze data; thus, the data collected for this paper may be incomplete, lack accuracy and reliability. Therefore, the future authors are recommended to use multiple sources to collect data and its analysis to ensure the comprehension, completeness and accuracy.Originality/valueLast but not least, this study with the evidences from the banking sector of G20 countries tries to show on the banking management how the risk element matters in the banking sector in an economy. It makes it clear in which areas the banking institutions may be exposed to the risks, and how much sever different kinds of risks may be. Thus, it motivates the management to set a body of persons within the organization to monitor the risks, to try to avoid them and to overcome the problems created by these risks events.

Nonperforming loans and bank profitability: evidence from an emerging market

2016 ◽  
Vol 7 (4) ◽  
pp. 462-481 ◽  
Author(s):  
Esther Laryea ◽  
Matthew Ntow-Gyamfi ◽  
Angela Azumah Alu
Keyword(s):  
Banking Sector ◽  
Emerging Market ◽  
Bank Profitability ◽  
Macroeconomic Factors ◽  
Policy Makers ◽  
Content Type ◽  
Nonperforming Loans ◽  
Panel Model ◽  
Macroeconomic Determinants ◽  
The Impact

Purpose The purpose of this paper is to investigate the bank-specific and macroeconomic determinants of nonperforming loans (NPLs) as well as the impact of NPLs on bank profitability. Design/methodology/approach Using a sample of 22 Ghanaian banks over the period 2005-2010, the study employs a fixed effect panel model in estimating three different empirical models. Findings The study finds new evidence of bank-specific factors as well as macroeconomic factors determining NPLs. Inflation and industry concentration are not significant in determining NPLs, although both are positively related to NPLs. Practical implications The findings of this study have important implications for policy makers and bank managers. Originality/value The paper offers significant value in shaping and improving the banking sector of emerging markets.

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