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Profitability of the Korean Banking Sector: Panel Evidence on Bank-Specific and Macroeconomic Determinants

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  • Fadzlan Sufian

    ()
    (Khazanah Research and Investment Strategy, Khazanah Nasional Berhad, Malaysia and Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, Malaysia)

Abstract

The paper analyzes the profitability of banks in Korea, while controlling for a wide array of bank specific and macroeconomic determinants. We find that Korean banks with lower liquidity levels tend to exhibit higher profitability. Furthermore, higher diversification regarding banks' income sources towards derivative instruments and other fee-based activities shows a positive effect. The impacts of credit risk and overhead costs are always negative whether we control for the macroeconomic and financial conditions or not. Business cycle effects, particularly inflation, display a substantial pro-cyclical impact on bank profitability. The industry concentration of the national banking system positively and significantly affects bank performance. The impact of the Asian financial crisis is negative, while Korean banks have been relatively more profitable during the pre-crisis compared to the post-crisis period.

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Bibliographic Info

Article provided by College of Business, Feng Chia University, Taiwan in its journal Journal of Economics and Management.

Volume (Year): 7 (2011)
Issue (Month): 1 (January)
Pages: 43-72

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Handle: RePEc:jec:journl:v:7:y:2011:i:1:p:43-72

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Related research

Keywords: banks; profitability; financial crisis; Korea;

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Cited by:
  1. Mohammad Abdelkarim Almumani, 2013. "Impact of Managerial Factors on Commercial Bank Profitability: Empirical Evidence from Jordan," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(3), pages 298-310, July.

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