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Econometric Analysis of the Determinants of Bank Profitability in Three Major African Counties: Kenya, Nigeria and South Africa

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  • Davis, E Philip
  • Ali Abdilahi, Ridwa

Abstract

Our panel econometric approach, using bank-level fixed effects, seeks to identify the bank-specific, banking-market and macroeconomic determinants of bank profitability in 240 banks across the three countries over 1990-2019. Across a range of estimates, we find that bank liquidity and the non-interest income to total income ratio had a significant positive effect on profitability while credit risk and the cost-to-income ratio had a significant negative effect. In most models, real GDP growth affected bank profitability positively. Small banks and large banks differ in terms of their determinants of profitability. There are important implications for both bank management and regulators, which in turn may affect both financial stability and scope for economic development.

Suggested Citation

  • Davis, E Philip & Ali Abdilahi, Ridwa, 2022. "Econometric Analysis of the Determinants of Bank Profitability in Three Major African Counties: Kenya, Nigeria and South Africa," National Institute of Economic and Social Research (NIESR) Discussion Papers 536, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:536
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    More about this item

    Keywords

    Bank management; bank profitability; bank regulation; financial and economic development; financial stability; Sub-Saharan Africa; Sub-Saharan AfricanB Banks;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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