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Factors Influencing Bank Profitability in a Developing Economy

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  • Fadzlan Sufian

    (Fadzlan Sufian is an Assistant Vice President in the Khazanah Research and Investment Strategy Department, Khazanah Nasional Berhad, Level 35, Tower 2, Petronas Twin Towers, Kuala Lumpur City Centre, 50088 Kuala Lumpur, Malaysia. E-mail: fadzlan.sufian@khazanah.com.my; fsufian@gmail.com.)

Abstract

The present article examines the determinants of bank profitability in a developing economy. Specifically working within the Malaysian financial sector, the analysis is confined to the universe of the domestic and foreign commercial banks operating in the Malaysian financial sector during the period 2000–04. The empirical findings suggest that Malaysian banks with a higher credit risk and a higher loan concentration exhibit lower profitability level. On the other hand, banks that have a higher level of capitalization, a higher proportion of income from non-interest sources, and high operational expenses tend to exhibit higher profitability level. The results suggest that economic growth has a negative effect on Malaysian banks’ profitability, while a higher inflation rate has a positive impact on Malaysian banks’ profitability.

Suggested Citation

  • Fadzlan Sufian, 2009. "Factors Influencing Bank Profitability in a Developing Economy," Global Business Review, International Management Institute, vol. 10(2), pages 225-241, July.
    • Handle: RePEc:sae:globus:v:10:y:2009:i:2:p:225-241
    DOI: 10.1177/097215090901000206
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    14. M.SakthiVadivel & S.Ayyappan,M.Com,MPhil, 2013. "Financial Efficacy of Selected Public and Private Sector Banks in India," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 2(2), pages 26-31, April.
    15. Chanchal Chatterjee & Paromita Dutta, 2016. "Exploring the Linkage between Profits and Asset–Liability Management," Paradigm, , vol. 20(2), pages 131-142, December.
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    17. Khan, Muhammad Kamran & Nouman, Mohammad & Imran, Muhammad, 2015. "Determinants of financial performance of financial sectors (An assessment through economic value added)," MPRA Paper 81281, University Library of Munich, Germany.
    18. Nupur Moni Das & Bhabani Sankar Rout, 2020. "Banks’ capital adequacy ratio: a panacea or placebo," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 47(3), pages 303-318, September.
    19. Alexandra Horobet & Magdalena Radulescu & Lucian Belascu & Sandra Maria Dita, 2021. "Determinants of Bank Profitability in CEE Countries: Evidence from GMM Panel Data Estimates," JRFM, MDPI, vol. 14(7), pages 1-23, July.
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    21. Trofimov, Ivan D. & Md. Aris, Nazaria & Ying Ying, Jovena Kho, 2018. "Determinants of Commercial Banks' Profitability in Malaysia," MPRA Paper 85598, University Library of Munich, Germany.
    22. Ioana Gabriela GRIGORESCU, 2019. "The Credit Outlook From The Bcr And Bt Perspective Between 2010-2017," Romanian Economic Business Review, Romanian-American University, vol. 14(2), pages 109-114, June.
    23. Kwame Mireku & Emmanuel Akomeah Sakyi & Joseph Akadeagre Agana, 2018. "Does Commercial Banks Presence Enhance Profitability in Ghana?," Global Business Review, International Management Institute, vol. 19(6), pages 1449-1461, December.
    24. Sanderson Abel & Pierre Le Roux, 2016. "Determinants of Banking Sector Profitability in Zimbabwe," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 845-854.
    25. Ahmed Arif & Mohammad Afzal, 2012. "Credit Risk and Shareholders’ Value in a Developing Economy: Evidence from Pakistani Banking System," Journal of Economics and Behavioral Studies, AMH International, vol. 4(2), pages 87-95.

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