Determinants of Profitability in the Banking Sector: An Analysis of Post-Soviet Countries
Abstract
:1. Introduction
2. Literature Review
3. Data and Methodology
3.1. The Data
3.2. Variables Used in the Analysis
3.3. Methodology
4. Empirical Results and Discussion
5. Conclusions
Author Contributions
Funding
Acknowledgments
Conflicts of Interest
References
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Authors | Scope | Method | Result |
---|---|---|---|
Molyneux and Thornton (1992) | 18 European countries | Regression | Defined that higher capital and interest rate will increase the profitability of the banks. |
Demirgüç-Kunt and Maksimovic (1998) | 30 different countries | Regression | Identified that there is a positive relationship between size and profitability of the bank. |
Demirgüç-Kunt and Huizinga (1999) | 80 different countries | Regression | Determined that inflation rate positively affects profitability of the banks. |
Abreu and Mendes (2001) | 4 European Union (EU) countries | Regression | Identified that a high amount of capital increases bank profitability. |
Goddard et al. (2004) | 6 EU countries | Generalized Method of Moments (GMM) | Determined that there is a positive relationship between bank size and profitability. |
Tunay and Silpar (2006) | Turkey | Regression | Determined that bank size, inflation rate and economic growth have a significant influence on profitability. |
Kiganda (2014) | Kenya | Regression | Identified that macroeconomic factors do not affect bank profitability in Kenya. |
Saeed (2014) | UK | Regression | Concluded that inflation rate affects bank profitability negatively whereas bank size has a positive influence. |
Al-Jafari and Alchami (2014) | Syria | GMM | Reached a conclusion that inflation rate and economic growth affect bank profitability. |
Dawood (2014) | Pakistan | Regression | Identified that capital adequacy influences bank profitability. |
Lipunga (2014) | Malawi | Regression | Defined bank size as the most important factor of bank profitability. |
Chowdhury (2015) | United Arab Emirates | GMM | Determined that higher capital improves bank profitability. |
Aftab et al. (2015) | Pakistan | Regression | Reached a conclusion that private banks are more profitable in comparison with others. |
Boitan (2015) | European Union | Granger Causality Analysis | Defined GDP growth rate as having a positive and high influence on the profitability of banks. |
Gyamerah and Amoah (2015) | Ghana | Regression | Concluded that risk management plays an important role with respect to the profitability of the banks. |
Duraj and Moci (2015) | Albania | Regression | Macroeconomic variables are as important as bank specific variables in order to evaluate profitability. |
Nisar (2015) | Pakistan | Regression | Determined that a high amount of non-performing loans leads to a decrease in profitability of banks. |
Petria et al. (2015) | European Union | Regression | Identified economic growth as a significant indicator of bank profitability. |
Buchory (2015) | Indonesia | Regression | Concluded that loan to deposit ratio and capital adequacy ratio do not have significant effect on the profitability of the banks. |
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. |
Alshatti (2015) | Jordan | Regression | Identified liquidity ratio as very significant in order to increase profitability. |
Pradhan and Shrestha (2016) | Nepal | Regression | Determined that higher capital adequacy ratio positively affects the profitability of banks. |
Aydemir and Ovenc (2016) | Turkey | Regression | Understood that bank profits in Turkey are sensitive to interest rates |
Alhassan et al. (2016) | Ghana | DAE | Defined a positive relationship between size and profitability of the banks. |
Garcia and Guerreiro (2016) | Portugal | Regression | Reached a conclusion that interest rate has no effect on the profitability of the banks. |
Albertazzi et al. (2016) | Italy | Regression | Decrease in economic growth is the main cause of low profitability of Italian banks. |
Ariyadasa et al. (2016) | Sri Lanka | VECM | Identified interest rate and non-performing loans as having a negative effect on bank profitability. |
Menicucci and Paolucci (2016) | 35 European banks | Regression | Concluded that size and capital ratio are important determinants of banks’ profitability. |
Tan et al. (2016) | China | GMM | Identified credit risk as negatively related to bank profitability. |
Opoku et al. (2016) | Ghana | Regression | Determined that non-performing loans have a negative effect on bank profitability. |
Terinte et al. (2016) | Romania | Regression | Identified independent auditors as influencing bank profitability. |
Islam and Nishiyama (2016) | South Asia | GMM | It was defined that interest rate positively affects bank profitability. |
Anarfi et al. (2016) | Ghana | Regression | Concluded that bank size and deposit do not affect bank profitability. |
Regehr and Sengupta (2016) | US | Regression | Reached a conclusion that there is a direct relationship between size and profitability of banks. |
Deng (2016) | US | Regression | Defined GDP growth as having a positive influence on bank profitability. |
Djalilov and Piesse (2016) | 8 transition countries | GMM | Concluded that credit risk, capital, size, concentration, GDP growth, inflation, financial freedom and property rights influence bank profitability |
Hanna (2016) | Syria | Regression | Identified a negative relationship between bank profitability and non-performing loans. |
Javaid (2016) | Pakistan | Regression | Defined that macroeconomic factors as having no effect on bank profitability. |
Kolapo et al. (2016) | Nigeria | Regression | Defined size of the banks as having no effect on bank profitability. |
Laryea et al. (2016) | Ghana | Regression | Identified non-performing loans as affecting the profitability of the banks negatively. |
Hu and Xie (2016) | China | Structural Equation Modeling | Concluded that risk-taking is positively related to profitability of the banks. |
Pradhan (2016) | Nepal | Regression | Determined that higher credit to asset ratio increases the profitability of banks. |
Khatun and Siddiqui (2016) | Bangladesh | Regression | Defined capital adequacy ratio as positively affecting profitability of banks. |
Ozili (2016) | Africa | GMM | Determined that higher capital amount increases the profitability of African banks. |
Wali Ullah et al. (2016) | Bangladesh | Regression | Identified a positive relationship between economic growth and profitability. |
Jabra et al. (2016) | BRICS countries | GMM | Concluded that bank capital has the greatest positive effect on bank profitability. |
Ahmad et al. (2016) | 78 Asian and 89 American banks | Regression | Determined that bank-specific variables rather than macroeconomic variables influence bank profitability. |
Variables | Details | References |
---|---|---|
Capital | Capital Adequacy Ratio | Molyneux and Thornton (1992); Ahmad et al. (2016); Hanna (2016); Djalilov and Piesse (2016); Menicucci and Paolucci (2016) |
Inflation Rate | (CPIt-CPIt-1)/CPIt-1) | Kiganda (2014); Saeed (2014); Al-Jafari and Alchami (2014) |
Loans/Deposits Ratio | Total Loans/Total Deposits | Hanna (2016); Regehr and Sengupta (2016); Menicucci and Paolucci (2016) |
Loans/GDP Ratio | Total Loans/GDP | Regehr and Sengupta (2016); Menicucci and Paolucci (2016); Alhassan et al. (2016) |
Size | Total Assets/GDP | Regehr and Sengupta (2016); Menicucci and Paolucci (2016); Demirgüç-Kunt and Maksimovic (1998) |
Non-Interest/Interest Income | Non-Interest Income/Interest Income | Javaid (2016); Albertazzi et al. (2016); Nisar (2015) |
Interest Rate | Deposit Interest Rate | Ariyadasa et al. (2016); Boitan (2015); Noman et al. (2015); Saeed (2014) |
Economic Growth | (GDPt-GDPt−1)/GDPt−1) | Kiganda (2014); Saeed (2014); Al-Jafari and Alchami (2014) |
Variables | Returns on Equity (ROE) | Inflation Rate | Loans/Deposits | Capital Adequacy Ratio (CAR) | Loans/GDP | Interest Rate | Size | GDP Growth | Non-Interest/Interest Income |
---|---|---|---|---|---|---|---|---|---|
ROE | 1 | ||||||||
Inflation Rate | 0.0352 | 1 | |||||||
Loans/Deposits | 0.0051 | −0.0553 | 1 | ||||||
CAR | 0.0263 | 0.0301 | −0.2097 | 1 | |||||
Loans/GDP | −0.2273 | −0.2282 | 0.4086 | −0.5881 | 1 | ||||
Interest Rate | −0.0464 | 0.0492 | 0.0534 | 0.1362 | −0.1 | 1 | |||
Size | −0.1111 | −0.0609 | 0.0881 | −0.2843 | 0.256 | −0.1912 | 1 | ||
GDP Growth | 0.3 | −0.0617 | −0.0257 | 0.0675 | −0.1846 | 0.0592 | −0.1294 | 1 | |
Non-interest/Interest Income | 0.2956 | 0.0262 | −0.1387 | 0.038 | −0.1942 | −0.2195 | −0.1112 | 0.0698 | 1 |
Dependent Variable: ROE | ||
---|---|---|
Independent Variables | GMM | Fixed Effects |
Lag ROE | 0.161 | |
(0.144) | ||
Inflation Rate | 0.0129 | 0.0331 |
(0.0381) | (0.0400) | |
Size | −0.000924 | −0.00173 |
(0.00163) | (0.00143) | |
Loan/Deposit Ratio | 0.00188 | 0.0137 |
(0.0135) | (0.0152) | |
CAR | −0.373 | −0.0556 |
(0.268) | (0.307) | |
Loan/GDP Ratio | −0.255 *** | −0.317 *** |
(0.0823) | (0.0791) | |
Interest Rate | −0.128 | −0.0137 |
(0.441) | (0.268) | |
Economic Growth | 0.839 *** | 0.546 ** |
(0.196) | (0.219) | |
Non-Interest/Interest Income | 0.0120 ** | 0.0164 ** |
(0.00582) | (0.00556) | |
2009 Crisis Dummy | −0.0870 ** | −0.107 * |
(0.0416) | (0.0509) | |
Constant | 0.202 ** | 0.187 *** |
(0.102) | (0.0584) | |
Observations | 247 | 273 |
R-squared | - | 0.281 |
Number of countrynum | 13 | 13 |
Prob > F | - | 0.0001 |
Prob > chi2 | 0.0000 | - |
AR(1) | 0.0250 | - |
AR(2) | 0.1641 | - |
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Yüksel, S.; Mukhtarov, S.; Mammadov, E.; Özsarı, M. Determinants of Profitability in the Banking Sector: An Analysis of Post-Soviet Countries. Economies 2018, 6, 41. https://doi.org/10.3390/economies6030041
Yüksel S, Mukhtarov S, Mammadov E, Özsarı M. Determinants of Profitability in the Banking Sector: An Analysis of Post-Soviet Countries. Economies. 2018; 6(3):41. https://doi.org/10.3390/economies6030041
Chicago/Turabian StyleYüksel, Serhat, Shahriyar Mukhtarov, Elvin Mammadov, and Mustafa Özsarı. 2018. "Determinants of Profitability in the Banking Sector: An Analysis of Post-Soviet Countries" Economies 6, no. 3: 41. https://doi.org/10.3390/economies6030041
APA StyleYüksel, S., Mukhtarov, S., Mammadov, E., & Özsarı, M. (2018). Determinants of Profitability in the Banking Sector: An Analysis of Post-Soviet Countries. Economies, 6(3), 41. https://doi.org/10.3390/economies6030041