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Determinants of Tunisian Bank Profitability

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  • Raoudha Bejaoui
  • Houssam Bouzgarrou

Abstract

The aim of this study is to examine the persistence of profit and the effect of bank-specific determinants of Tunisian bank profitability. To account for profit persistence, we apply a dynamic panel model, using Generalized Methods of Moments (GMM) system for 16 Tunisian commercial banks, divided into 11 deposit banks and 5 development banks during the period 1999-2010. The estimates show that the evidence for profit persistence is positive and significant for both deposit and development banks during the period 2005-2010. However, we find that deposit banks are more competitive than development banks. Therefore, abnormal profit persists for Tunisian banks, but development banks enjoy more regulatory protection than deposit banks. We find a positive relationship between capital and profitability. This implies that the capital market is not perfect in the Tunisian banking sector. The liquidity risk management by Tunisian banks shows that the overuse of deposits to finance loans is likely to weigh on the profitability of the banks. Finally, we show that credit risk management is negatively related to bank profitability and that deposit and development banks suffer from the bad quality of their loans and the lack of provisions over the period 1999-2010.

Suggested Citation

  • Raoudha Bejaoui & Houssam Bouzgarrou, 2014. "Determinants of Tunisian Bank Profitability," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(4), pages 121-131.
    • Handle: RePEc:ibf:ijbfre:v:8:y:2014:i:4:p:121-131
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    More about this item

    Keywords

    Bank Profitability; Imperfect Markets; Dynamic Panel;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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