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Economies 2018, 6(3), 41; https://doi.org/10.3390/economies6030041

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

1
The School of Business, Istanbul Medipol University, Istanbul 34810, Turkey
2
Department of Economics and Management, Khazar University, 41 Mehseti Str., Baku AZ1096, Azerbaijan
3
Department of World Economy, Baku Engineering University, Hasan Aliyev 120, Khirdalan AZ0101, Azerbaijan
4
Department of Economics, Konya Food and Agriculture University, Konya 42080, Turkey
*
Author to whom correspondence should be addressed.
Received: 22 May 2018 / Revised: 4 July 2018 / Accepted: 11 July 2018 / Published: 19 July 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. View Full-Text
Keywords: profitability; banking sector; panel regression; Generalized Method of Moments (GMM) methods; post-soviet countries profitability; banking sector; panel regression; Generalized Method of Moments (GMM) methods; post-soviet countries
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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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.

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