ISSN (Online): 2321-3418
server-injected
Economics and Management
Open Access

The Impact of bank-specific and macroeconomic variables on the profitability of banks from selected African countries

,
DOI: 10.18535/ijsrm/v10i2.em09· Pages: 3097-3110· Vol. 10, No. 02, (2022)· Published: February 23, 2022
PDF
Views: 485 PDF downloads: 219

Abstract

This was an empirical investigation of the impact of bank-specific and macroeconomic variables on the profitability of banks in selected countries in Africa, over the period 2009 to 2019. The study focused on 33 banks operating across 9 African countries, namely  South Africa, Uganda, Kenya, Tunisia, Egypt, Namibia, Zambia, Nigeria and Ghana, as representative of the continent. The analyses of the various interrelations were done using the dynamic panel data modelling approach. The study used an unbalanced panel of commercial banks’ data in the selected countries to estimate the model with both the return on equity and the return on assets as proxies for profitability. Of the bank-specific variables, net interest margin, loan loss and cost to income ratios have a statistically significant negative relationship with profitability. The relationship between non-performing loans, capital adequacy and profitability is statistically not significant.  There is however, a positive and statistically significant relationship between profitability and macroeconomic-specific variables. Overall the study shows mixed impacts of bank-specific and macroeconomic variables on the profitability of banks in the selected countries in Africa, although they are at a different level of regulatory and supervisory regimes, including the pace of technological developments and implementation.

Keywords

banksregulationsprofitabilityrisk profilesupervisioninterrelations

References

  1. Ali, K., Akhtar, M.F. and Ahmed, H.Z. (2011). Bank specific and macroeconomic indicators of profitability – Empirical evidence from the commercial banks of Pakistan. International Journal of Business and Social Science, 2(6), pp 235 – 242.Google Scholar ↗
  2. Ali, S.A. (2016). Determinants of banks’ profitability – the case of Jordan. Journal of Investment Management and Financial Innovations (open-access), 13(1), pp. 84-91.Google Scholar ↗
  3. Ali, K., Akhtar, M.F. and Ahmed, H. Z. (2011). Bank Specific and Macroeconomic indicators of Profitability- Empirical Evidence from the Commercial Banks of Pakistan. International Journal of Business and Social Science, 2(6), pp. 235-242.Google Scholar ↗
  4. Akbas, H.E. (2012). Determinants of bank profitability: An investigation on Turkish banking sector. [Available from:https://www.semanticscholar.org/paper/DETERMINANTS-OF-BANK-PROFITABILITY-%3A-AN-ON-TURKISH- Görevlisi/52a812afc350e4b2a8f901ab84e63a31fd634b0c] (Accessed 6 October 2019).Google Scholar ↗
  5. Albertazzi, U. and Gambacorta, L. 2010. Bank Profitability and Taxation. Journal of Banking and Finance, 34(11), 393-409.Google Scholar ↗
  6. Albertazzi, U., Gambacorta, L.2006. Bank Profitability and the Business cycle. Bank of Italy Economic Research Paper No. 601. Available at: https://ideas.repec.org. (Accessed: 14 May 2020).Google Scholar ↗
  7. Amuakwa-Mensah, F., and Marbuah, G. (2015). The determinants of net interest margin in the Ghanaian banking industry. Journal of African Business, 16(3), pp. 272–288.Google Scholar ↗
  8. Athanasoglou, P. P., Brissimis, S. N., and Delis, M. D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18 (2), pp. 121-136.Google Scholar ↗
  9. Barth, J. R., Caprio, G., and Levine, R. (2008). Rethinking bank regulation: Till angels govern. Cambridge: Cambridge University Press.Google Scholar ↗
  10. Barth, J-R., Caprio, G., and Levine, R. (2012). The evolution and impact of bank regulations (Policy Research Working Papers). Washington, DC: The World Bank. dx.doi.org/10.1596/1813- 9450-6288DOI ↗Google Scholar ↗
  11. Bashir, A. (2000). Determinants of Profitability and Rates of Return Margins in Islamic Banks: Some Evidence from the Middle East, Grambling State University, Mimeo.Google Scholar ↗
  12. Beck, T., and Rojas-Suarez, L. (2019). Making Basel III Work for Emerging Markets and Developing Economies: A CGD Task Force Report (April 23, 2019). Available at SSRN: https://ssrn.com/abstract=3391886 or http://dx.doi.org/10.2139/ssrn.3391886. [Accessed: 30 10 October 2020]DOI ↗Google Scholar ↗
  13. Bilal,M., Saeed, A., Gull,A. and Akram,T. (2013). Influence of bank specific and macroeconomic factors on profitability of commercial banks: A case study of Pakistan. Research Journal of Finance and Accounting, Vol.4, No.2, 2013. [Available at: https://www.iiste.org]. (Accessed: 12 May 2020)Google Scholar ↗
  14. Boyd, J. H., and Runkle, D. E. (1993). Size and performance of banking firms: Testing the predictions of theory. Journal of Monetary Economics, 31(1), pp. 47–67.Google Scholar ↗
  15. Boyd, H., Levine, R., and Smith, B. (2001). The impact of inflation on financial sector performance. Journal of Monetary Economics, 47(2), pp. 221-248.Google Scholar ↗
  16. Caruana J. (2015). Regulatory stability and the role of supervision and governance. [Available at: https://www.bis.org/speeches/sp151103.htm] (Accessed 19 October 2019).Google Scholar ↗
  17. Choi, I. (2001). Unit Root Tests for Panel Data. Journal of International Money and Finance, 20(19), pp. 249–272. .Google Scholar ↗
  18. Demirgüç-Kunt, A., and Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), pp. 379– 408.Google Scholar ↗
  19. Demirguc-Kunt, A., and Huizinga, H. (2000). Financial Structure and Bank profitability. Working paper (2430), The World Bank, August 2000.Google Scholar ↗
  20. Flamini, V., Schumacher, M. L., and McDonald, M. C. A. (2009). The determinants of commercial bank profitability in Sub-Saharan Africa, No. 9–15, International Monetary Fund.Google Scholar ↗
  21. Gale, D. (2010). The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?, International Journal of Central Banking, 6(34), pp. 187-204..Google Scholar ↗
  22. Hausman, A.J. (1978). Specification tests in Econometrics. Econometrica 46(6), pp. 1251-1272. [Available on: https://scholar.google.co.za/scholar?]. (Accessed: 18 September 2020). Published by: The Econometric Society Stable URL:Google Scholar ↗
  23. Haron, S. and Wan Azmi, W.N. (2004). Profitability Determinants of Islamic Banks: A Cointegration Approach. Proceedings of the Islamic Banking Conference, Union Arab Bank, Beirut, Lebnon, 5-7 December 2004.Google Scholar ↗
  24. Kosmidou, K.; Pasiouras, F. and Tsaklanganos, A. (2005). Factors Influencing the Profits and Size of Greek Banks Operating Abroad: A Pooled Time-Series Study. Applied Financial Economics, 15(10), pp. 731-738.Google Scholar ↗
  25. Levin, A., Lin, C.F., and Chu,C.S.J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), pp. 1-24.Google Scholar ↗
  26. Abreu, M., and Mendes, V. (2001). Commercial Bank Interest Margins and Profitability: Evidence for Some EU Countries . Paper Presented at the Proceedings of the Pan-European Conference, Jointly Organized by the IEFS-UK and the University of Macedonia Economic and Social Sciences, Thessaloniki, Greece, in May, 2001.Google Scholar ↗
  27. Naceur, S.B. (2003). The Determinants of the Tunisian Banking Industry Profitability: Panel Evidence. Available at: http://www.mafhoum.com/press6/174E11.pdf. (Accessed: 10 July 2020).Google Scholar ↗
  28. Naceur, S. B., and Kandil, M. (2009). The impact of capital requirements on banks’ cost of intermediation and performance: The case of Egypt. Journal of Economics and Business, 61(1), pp. 70–89.Google Scholar ↗
  29. Naceur, S.B., and Goaied, M. (2008). The determinants of commercial bank interest margin and profitability: Evidence from Tunisia. Frontiers in Finance and Economics, 5(1), pp. 106–130.Google Scholar ↗
  30. Ongore, V. O., and Kusa, G. B. (2013). Determinants of financial performance of commercial banks in Kenya. International Journal of Economics and Financial, 3(1), pp. 237–252.Google Scholar ↗
  31. Ozili, P. K. (2015). Determinants of bank profitability and Basel capital regulation: Empirical evidence from Nigeria. Research Journal of Finance and Accounting, 6(2), pp. 124–131.Google Scholar ↗
  32. Ozili, P.K. (2019). Basel III in Africa: Making it work. Available at: https//mpra.ub.uni-muenchen.de/94222. (Accessed: 10 July 2020)Google Scholar ↗
  33. Ozil, P.K. (2017). Bank Profitability and Capital Regulation: Evidence from Listed and non-Listed Banks in Africa, Journal of African Business, 18(2), pp. 143-168, DOI: 10.1080/15228916.2017.1247329DOI ↗Google Scholar ↗
  34. Park, H.M. (2011). Practical guides to panel data modelling: A step by step analysis using stata. International University of Japan; Public Management & Policy analysis program. [Available at: http://www.iuj.ac.jp/faculty/kucc625]. (Accessed: 20 June 2020.)Google Scholar ↗
  35. Pasiouras, F., and Kosmidou, K. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 21(2), pp. 222–237.Google Scholar ↗
  36. Perry, P. (1992). Do Banks Gain or Lose from Inflation?. Journal of Retail Banking, 14(2), pp. 25-30.Google Scholar ↗
  37. Rehman, Z., Khan, S.A., and Rhaman, A. (2018). Internal factors, external factors and the banks’ profitability. Sarhad Journal of management Sciences (SJMS), 4(2), pp. 2414 – 2336 (print), ISSN 2523 – 2525 (online). Available at: https://www.researchgate.net/pubications/330026138. (Accessed: 20 June 2020).Google Scholar ↗
  38. The World Bank, (2020). World Development Indicators (WDI). [Available at: https://databank.worldbank.org/home.aspx]. (Accessed: 20 July 2020).Google Scholar ↗
Author details
Nkhangwe Masindi
The Da Vinci Institute
✉ Corresponding Author
ORCID ↗
👤 View Profile →
Paul Singh
The Da Vinci Institute 16 Park Ave, Modderfontein, Johannesburg
👤 View Profile →