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Book part

Tria Ratnasari, Arni Surwanti and Firman Pribadi

There is a global concern over climate change issues. The banking sector is expected to join the initiatives in solving environmental issues, even though banking sectors…

Abstract

There is a global concern over climate change issues. The banking sector is expected to join the initiatives in solving environmental issues, even though banking sectors have no direct contribution to environmental damage. Banking commitment to environmental issues is required. The banking sector should have a responsibility for monitoring and managing the impacts of the ecological effects as the result of their business activities. The advantages of green banking implementation are that bank can avoid the use of paper by utilizing online transaction for their daily operation such as internet banking, SMS banking, and ATM. This will bring in the paperless operation into the banks, which in turn will reduce the logging of the forest. Banks also can develop an environmentally friendly lending policy for their business activities. This research aims to determine the impact of green banking daily operation, green banking policy (GBP), capital adequacy, non-performing loan (NPL), bank efficiency, and bank liquidity on bank profitability. The sample of this research is the Indonesian banking sector during the period 2012–2016. The results showed that green banking daily operation, capital adequacy, and bank liquidity have a positive effect on bank profitability. GBP and bank efficiency negatively affect bank profitability, while the NPL did not have a significant impact on banksprofitability.

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Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics
Type: Book
ISBN: 978-1-83867-359-8

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Article

Qamar Uz Zaman, Kinza Aish, Waheed Akhter and Syed Anees Haidder Zaidi

The purpose of this paper is to address the effect of corruption and money laundering (ML) on banking profitability and stability.

Abstract

Purpose

The purpose of this paper is to address the effect of corruption and money laundering (ML) on banking profitability and stability.

Design/methodology/approach

This study uses the panel data of 72 banks of Pakistan and Malaysia from 2012–2018. This paper uses fixed effect (FE) and random effect (RE) regression techniques for empirical testing and generalized methods of moment (GMM) technique for robustness tests.

Findings

This study founds consistent evidence that corruption has a positive and ML has a negative relationship with the banking profitability of Pakistan and Malaysia while the empirical evidence suggests that corruption and ML have a diverse impact on the banking stability of Pakistan and Malaysia. Further, this paper also founds that corruption and ML moderates the relationship between risk and banking profitability and stability.

Practical implications

The results reveal that the banks of the highly corrupt environment are more affected by corruption and ML than the least corrupt environment. Thus, it is recommended that the Government of Pakistan should formulate strong anti-corruption and anti-money laundering policies.

Originality/value

As per the knowledge of the authors, this research contributes to understanding the role of corruption and money laundering on the stability and profitability of Pakistan and, in general, it is the first attempt investigating the moderating role of corruption and ML between risk and banking profitability and stability.

Details

Journal of Money Laundering Control, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1368-5201

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Article

Yong Tan and Christos Floros

The purpose of this paper is to evaluate the determinants of bank profitability in China. It examines the effects of inflation on bank profitability, while controlling for…

Abstract

Purpose

The purpose of this paper is to evaluate the determinants of bank profitability in China. It examines the effects of inflation on bank profitability, while controlling for comprehensive bank‐specific and industry‐specific variables.

Design/methodology/approach

The sample comprises a total of 101 banks (five state‐owned banks, 12 joint‐stock commercial banks and 84 city commercial banks). The period under consideration extends from 2003‐2009. The two step generalized methods of moments (GMM) estimators are applied.

Findings

Empirical results exhibit that there is a positive relationship between bank profitability, cost efficiency, banking sector development, stock market development and inflation in China. The authors report that low profitability can be explained by higher volume of non‐traditional activity and higher taxation. Moreover, the authors confirm that there is a competitive environment in the Chinese banking industry. Furthermore, the authors propose policy actions that should be taken to improve bank profitability in China.

Research limitations/implications

Further research can be conducted by investigating the profitability of numerous branches of all national banks and its determinants.

Practical implications

The findings of the current study have considerable policy relevance. First, Chinese banks should emphasize the improvement of labour management and training skills, the purpose of which is to increase their productivity and boost the profitability. Furthermore, the government should gradually continue to open the banking and stock market, as the development of the financial sector is helpful in increasing the banks' profitability in China.

Originality/value

Particular emphasis will be placed on the investigation into the effect of inflation on bank profitability while controlling for most comprehensive internal and external factors.

Details

Journal of Economic Studies, vol. 39 no. 6
Type: Research Article
ISSN: 0144-3585

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Content available
Article

Abdelkader Derbali

The economic and financial literature dealing with the subject of bank profitability has often been based in the measurement of banking results on three main indicators…

Abstract

Purpose

The economic and financial literature dealing with the subject of bank profitability has often been based in the measurement of banking results on three main indicators: ROA, ROE and MIN. This article aims to determine and analyze the different determinants that influence bank profitability and to identify the impact of these determinants on the profitability of Moroccan banks.

Design/methodology/approach

For this purpose, a fixed individual effect model was adopted for the case of six Moroccan banks during the period of study from 1997 to 2018. The authors carried out their estimates at three levels according to three categories of profitability factors: bank factors, factors of the banking system and macroeconomic factors.

Findings

The empirical findings show that Moroccan banks react on their size to boost their performance, which further explains the continued expansion of Moroccan banking networks. The authors confirm that Moroccan banks have not yet reached a level of size that will be detrimental to their performance. Therefore, the authors can conclude that the big Moroccan banks do not follow the concept of economy of scale. The effects of the variation in the level of economic growth as well as the evolution of the level of inflation on the performance of Moroccan banks are not significant.

Originality/value

The authors’ findings and results have some important originality and value. Primarily, these results would consist of better helping the State, bankers, and bank managers to better understand the various determinants of bank profitability. The results may also help to better examine the effect of each factor, whether internal or external, on banks' bottom line.

Details

Journal of Business and Socio-economic Development, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2635-1374

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Book part

Neha Chhabra Roy and Viswanathan Thangaraj

This study gauges the profitability and performance of Indian commercial banks under the technology advancements. In this study, the authors identified three domains that…

Abstract

This study gauges the profitability and performance of Indian commercial banks under the technology advancements. In this study, the authors identified three domains that give advantage to banks due to technology incorporation, that is, increased sales revenue, reduced operating expenses, and increased employee productivity. The authors assess the effect of these domains on banksprofitability and performance. This study is conducted for the period between the years 2003 and 2018 across 34 public and private banks for empirical analysis. The authors examined the impact of investment in technology on the profitability using panel data analysis and evaluated the long-term effect of technology investment using the vector error correction model. This study found that there is a mixed effect of technology spend on the profitability and performance of Indian banks, where private sector banks are more aggressive in technology investment as compared to the public sector banks. This study recommends an optimal technology-related strategy to gain improved productivity for the banking business, that is, planned technology reserves, customer awareness campaigns about technology-enabled products, and robust employee–customer motivation policy.

Details

Financial Issues in Emerging Economies: Special Issue Including Selected Papers from II International Conference on Economics and Finance, 2019, Bengaluru, India
Type: Book
ISBN: 978-1-83867-960-6

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Article

Elisa Menicucci and Guido Paolucci

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

All the determinant variables included in the model have statistically significant impacts on European banksprofitability. 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.

Practical implications

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.

Originality/value

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.

Details

Journal of Financial Reporting and Accounting, vol. 14 no. 1
Type: Research Article
ISSN: 1985-2517

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Article

Yong Tan, Christos Floros and John Anchor

This study aims to test the impacts of risk-taking behaviour, competition and cost efficiency on bank profitability in China.

Abstract

Purpose

This study aims to test the impacts of risk-taking behaviour, competition and cost efficiency on bank profitability in China.

Design/methodology/approach

A two-step generalized method of moments system estimator is used to examine the impacts of risk, competition and cost efficiency on profitability of a sample of Chinese commercial banks over the period 2003-2013.

Findings

The paper finds that credit risk, liquidity risk, capital risk, security risk and insolvency risk significantly influence the profitability of Chinese commercial banks. To be more specific, credit risk is significantly and negatively related to bank profitability; liquidity risk is significantly and positively related to return on assets (ROA) and net interest margin (NIM) but negatively related to return on equity (ROE); capital risk has a significant and negative impact on ROA and NIM but a positive impact on ROE; there is a significant and negative impact of security risk on bank profitability (ROA and NIM). It is found that Chinese commercial banks with higher levels of insolvency risk have higher profitability (ROA and ROE). Finally, higher competition leads to lower profitability in the Chinese banking industry, and Chinese commercial banks with higher levels of cost efficiency have lower ROA. In other words, the structure–conduct–performance paradigm rather than the efficient–structure paradigm holds in the Chinese banking industry.

Originality/value

This is the first paper to investigate the impact of different types of risk, including credit risk, liquidity risk, capital risk, security risk and insolvency risk, on bank profitability. This is the first study which uses more accurate measurements of efficiency and competition compared to previous Chinese banking profitability literature and which tests their impact on bank profitability. The findings not only provide a general picture on the risk, efficiency and competition conditions in the Chinese banking industry, but also give valuable information to the Chinese Government and to the banking regulatory authorities to make relevant policies.

Details

Review of Accounting and Finance, vol. 16 no. 1
Type: Research Article
ISSN: 1475-7702

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Book part

Glenn Growe, Marinus DeBruine, John Y. Lee and José F. Tudón Maldonado

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…

Abstract

Purpose

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.

Approach

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.

Findings

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.

Originality

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.

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Article

Ahmad Y. Khasawneh

This paper aims to compare Islamic and commercial banks in the region of Middle East and North Africa (MENA) in terms of profitability and stability.

Abstract

Purpose

This paper aims to compare Islamic and commercial banks in the region of Middle East and North Africa (MENA) in terms of profitability and stability.

Design/methodology/approach

The study combines both the descriptive and analytical approaches. It considers panel data sets and adopts panel data econometric techniques.

Findings

The determinants of banks profitability and stability are different according to bank’s type. The results show that Islamic banks are more profitable than commercial banks, while on the other hand, commercial banks are more stable than Islamic banks. It is also concluded that banks profitability and stability are determined through some bank’s characteristics variables and macroeconomic variables in addition to the financial crises. MENA commercial and Islamic banking was affected by the financial crises in terms of profitability and stability. Additionally, larger banks are more stable than smaller banks, and off-balance sheet activities increase banks’ vulnerability for both commercial and Islamic MENA banks.

Research limitations/implications

The most prominent limitation is the lack of data, as we had to exclude some variables because of missing observations. As a result, the authors could not use data envelopment approach and stochastic frontier approach to evaluate banks efficiency in MENA countries rather than the financial ratios.

Practical implications

Commercial banks need to enhance their capitalization to improve their profitability. Additionally, Islamic banks need to improve the risk assessment and adopt some of the available risk management tools. Moreover, the banking system should take advantage of relatively higher Islamic banks profitability and use the unexploited profit opportunities through spreading into those countries with limited availability, such as the North African countries.

Originality/value

This study address both banks profitability and stability in an emerging region that includes banks of different types (Islamic and commercial) which are located in different counties that allows accounting for operational and institutional differences.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 9 no. 4
Type: Research Article
ISSN: 1753-8394

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Article

Abdulazeez Y.H. Saif-Alyousfi and Asish Saha

This paper aims to examine the effect of bank-specific, financial structure and macroeconomic factors on the risk-taking behavior, stability and profitability of banks in…

Abstract

Purpose

This paper aims to examine the effect of bank-specific, financial structure and macroeconomic factors on the risk-taking behavior, stability and profitability of banks in Gulf Cooperation Council (GCC) economies during 1998–2017.

Design/methodology/approach

The authors use a two-step system generalized method of moments dynamic model to analyze the data.

Findings

The results show that non-traditional activities increase the risk and decrease the stability and profitability of banks that are highly capitalized, highly liquid and large. Banks in this group are less engaged in securities investments and their higher degree of loan exposure leads to a decrease in risk and an increase in their stability and profitability. Higher concentration increases the risk and decreases the stability and profitability of banks that are less capitalized, less liquid and small. Banks with a higher share of non-traditional activities are riskier and less stable and less profitable before the financial crisis. The study finds that banks with relatively higher capitalization and high lending growth rates are riskier, profitable and less stable during the crisis. Larger commercial banks are less risky and more stable and profitable than smaller banks before the global financial crisis. Islamic banks performed better in terms of fee income, capitalization, liquidity, asset quality and have higher market concentration than conventional banks.

Originality/value

The study provides the first comprehensive empirical evidence on the drivers of risk-taking behavior, stability and profitability of the GCC banks. It also investigates the differences across these variables based on the characteristics of financial strength such as capitalization, liquidity and size; before, during and after the financial crisis; and differences between Islamic and conventional banks.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8394

Keywords

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