Search results

The purpose of this paper is to report the results of an investigation into the relationship between bank-specific, macroeconomic factors and bank profitability before (1999-2006), during (2007-2009), and after (2010-2013) the financial crisis.

Using the Economic Community of West African States’ bank panel data from 1999 to 2013, the paper used fixed effect models. The panel model includes bank-specific determinants (size, cost management, and liquidity), industry level, and macroeconomic variables.

Panel data analyses results show that there is a significant relationship between bank-specific determinants (size, cost management, and liquidity) and bank profitability (ROA) before, during, and after the financial crisis. However, the relationships between other bank-specific (capital strength, credit risk, and market power), macroeconomic (gross domestic product and inflation) determinants are sensitive to both periods of analysis (before, during, and after financial crisis) and bank profitability measure used (ROA or NIM).

Overall, these results suggest that the financial crisis did not affect the relationships between some bank-specific determinants and bank profitability.

This paper examines the profitability and performance measurement of U.S. regional banks during the period 1994–2011, using the GMM estimator technique. Our study extends prior research by including several factors not previously considered using U.S. data.

We use bank-specific, industry-specific, and macroeconomic determinants of profitability contemporaneous with our performance indicators. We follow the accounting fundamental analysis path in explaining the bank performance.

Among the performance measures, the efficiency ratio and provisions for credit losses are negatively and equity scaled by assets is positively related to profitability. However, these relationships either reverse (efficiency ratio and provisions for credit losses) or become insignificant (equity scaled by assets) when the target becomes change in profitability. The level of nonperforming assets is negatively related to profitability across all measures of profitability used. Macroeconomic variables are largely unrelated to profitability during the year they are measured. However, they have a significant relationship with earnings change measures, suggesting they have a lagged effect on profitability. The slope of the yield curve is especially strong in this regard.

We use our determinants to model changes in bank profitability one year ahead, in addition to including several factors not previously considered, using the predictive focus of the fundamental analysis research.

Purpose: The main purpose of this chapter is to thoroughly investigate the diverse literature available concerning nonperforming loans (NPLs) and its determinants by studying and analyzing the empirical studies from 1985 to 2019.

Design/Methodology: A qualitative approach is being incorporated, and by using content analysis, various previous studies are reviewed and important issues like the objectives, methodology, key findings, and variables are reported.

Findings: The study tries to compile the main findings from the various studies done concerning NPLs and its determinants. The study shows how various determinants both bank-specific and macroeconomic affect the banking structure and thus the NPLs, in different countries and at different periods of time. The study also highlights how countries’ banking structure got affected by various economic phenomena like recession, contagious effect of the financial crisis, banking Basel norms, and NPL management strategies. Further major issues like data acquisition, lack of data reporting, countries specific banking conditions, methodologies used in the analysis, scarce resources, and disclosure hindrance which are faced by previous studies were also reported.

Originality/Value: As there are very few studies that provide a detailed viewpoint on NPLs and its determinants in this area, this research will provide a concise and detailed framework for the researchers to analyses the diverse literature on NPLs and its determinates.

This paper aims to provide new empirical evidence on the non-performing loan (NPL) determinants of the EU conventional banks, in the context of macroeconomic factors, dimensions of country governance and bank-specific characteristics.

The panel data sets of 1,053 conventional banks were obtained over the period of 2007-2016. The Hodrick–Prescott filter was adopted to extract business cycle and credit cycle from real gross domestic product and credit to the private non-financial sector, correspondingly. System-generalised methods of moment was then used to identify the significant determinants of NPL.

The empirical results reveal that NPL is primarily driven positively by lagged-one NPL and risk profile. In consonance with the skimping hypothesis, NPL has a significant positive relationship with the cost efficiency. The empirical finding of the business cycle coincides with the Austrian business cycle theory. Particularly, NPL is relatively low during rapid economic growth of credit-sourced business boom. Whereas, business bust happens when credit creation runs its course and is associated with high NPL. This paper encapsulates that NPL is driven by not only macroeconomic factors and bank-specific characteristics but also the dimensions of country governance.

Policymakers should introduce policies that are geared towards proper dimensions of country governance.

The novelty of this research does not rely on the multidimensions of NPL determinants but on the disentanglement of the conventional banks with dual identity (i.e. Islamic banks, cooperative banks and ethical banks). It considers business cycle, credit cycle and previous NPL as the potential determinants.

The purpose of this paper is to inspect whether bank‐specific and macro‐economic determinants influence Islamic banks' profitability in the selected countries of different regions.

In order to achieve the study objective and to answer the question, the balanced panel data regression model has been used. Bank level data is used and this study examines the alternative measures ROA and ROE as a bank‐specific function and macro‐economic determinants.

The study results signify that banks with larger assets size and with efficient management lead to greater return on assets.

The paper shows that management efficiency regarding operating expenses positively and significantly affects the banks' profitability.

The purpose of this study is to examine the effect of bank-specific, industry-specific and macroeconomic determinants of bank profitability amongst domestic UK commercial banks.

This study used an empirically driven single equation framework that incorporates the traditional structure–conduct–performance (SCP) hypothesis. A generalised method of moments technique was applied to a panel of UK banks covering the period 1998–2018 to account for profit persistence.

The estimation results show that all bank-specific determinants, with the exception of credit risk, significantly affect bank profitability in the anticipated way. However, no evidence was found in support of the SCP hypothesis. Interest rates, especially longer-term interest rates, and the rate of inflation has a significant effect on bank profitability, with the business cycle having a symmetric insignificant effect once other variables have been accounted for. Profitability persists to a moderate extent within the UK banking market, indicating that there exists a departure from a perfectly competitive market structure.

The literature that examines the actual underlying determinants of UK domestic bank profitability is limited.

The recent rise of nonperforming loans (NPLs) in some Asian economies calls for close analysis of the determinants, the potential macrofinancial feedback effects, and the implications for financial stability in the region. Using a dynamic panel model, we assess the determinants of the evolution of bank-specific NPLs in Asia and find that macroeconomic conditions and bank-specific factors – such as rapid credit growth and excessive bank lending – contribute to the buildup of NPLs. Further, a panel vector autoregression (VAR) analysis of macrofinancial implications of NPLs in emerging Asia offers significant evidence for feedback effects of NPLs on the real economy and financial variables. Impulse response functions demonstrate that a rising NPL ratio decreases the GDP growth, credit supply and increases the unemployment rate. Our findings underline the importance of considering policy options to swiftly and effectively manage and respond to a buildup of NPLs. The national and regional mechanisms underlying NPL resolution are important for safeguarding financial stability in an increasingly interconnected global financial system.

Which of the banking stream is relatively more profitable in Middle Eastern and North Africa (MENA) region?

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.

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.

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.

This paper aims to identify and analyze the similarities and differences of the liquidity risk determinants within conventional and Islamic banks.

This study uses a dynamic panel data approach to examine the relationship between liquidity risk and a set of bank-specific and macroeconomic factors during 2005–2015, by selecting 27 Islamic banks and 49 conventional ones operating in the MENA region. More specifically, the dynamic two-step generalized method of moment estimator technique introduced by Arellano and Bond (1991) is applied.

The results suggest that the set of bank-specific variables influences the liquidity risk of both banking systems, while macroeconomic factors determine the liquidity risk of conventional banks. Islamic banks are not affected by macroeconomic determinants.

The research facilitates to the academicians, practitioners and bankers to have an alluded picture about liquidity risk determinants and their management. The findings can be used by bankers’ policy decision-makers to improve and enhance their consideration for liquidity risk management in both banking systems. Indeed, the study makes them aware to manage liquidity risk differently between conventional and Islamic banks, as the results reveal different liquidity risk determinants.

Compared to the abundant studies on the determinants of credit risk, researchers have not sufficiently addressed the factors influencing liquidity risk. Moreover, none of these few research studies has discussed and compared liquidity risk determinants within both banking systems operating in the Middle East and North Africa (MENA) region. This leads us to identify the similarities and differences between conventional and Islamic banks in the MENA region in respect of systematic and unsystematic determinants of the liquidity risk. The value is attributed to the increasing differentiation between Islamic and conventional banks. Islamic banks are characterized with a different liquidity structure distinguishing them from their conventional counterparts.

The purpose of this paper is to investigate the relationship between bank-specific characteristics and profitability in European banking sector to find the role of internal factors in achieving high profitability.

A regression analysis is built on an unbalanced panel data set comprising 175 observations of 35 top European banks over the period 2009-2013. To this end, the empirical data are collected from Bankscope and a comprehensive set of internal characteristics is examined.

All the determinant variables included in the model have statistically significant impacts on European banks’ profitability. However, the effects are not uniform across profitability measures. Regression findings reveal that size and capital ratio are significant company-level determinants of bank profitability in Europe, while higher loan loss provisions result in lower profitability levels. Findings also suggest that banks with higher deposits and loans ratio tend to be more profitable but the effects on profitability are statistically insignificant in some cases.

This study has considerable policy implications, as the performance of the European banking sector depends on its efficiency, profitability and competitiveness. In view of these findings, some suggestions may be functional for bank regulatory authorities to intensify and sustain robustness and stability of the banking sector.

The results provide interesting insights into the characteristics and practices of profitable banks in Europe. Few econometric studies have empirically explored the determinants of bank profitability in Europe so far, even though similar studies have been conducted in several developed countries. Therefore, this paper tries to close an important gap in the existing literature improving the understanding of bank profitability in Europe.