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The determinants of bank profitability: dynamic panel evidence from South Asian countries

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  • Shahidul Islam
  • Shin-Ichi Nishiyama

Abstract

Using the GMM estimator, this paper empirically studies the bank-specific, industry specific and macroeconomics specific determinants of bank profitability of 259 commercial banks in the South Asian countries (Bangladesh, India, Nepal and Pakistan) in the period of 1997-2012. Empirical results show a low level of profit persistency and a late-hit of the global financial crisis in the banking sector in the region. We found no evidence for the traditional SCP hypothesis in relation to banking profit but financial solvency and managerial excellence have positive affiliation. Cost of fund, liquidity, funding gap, term structure of interest rate and economic growth rate found negative influence while rate of inflation positively affect bank profit. Also to report that South Asian banks are operating with 'inefficient' manpower.

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  • Shahidul Islam & Shin-Ichi Nishiyama, 2015. "The determinants of bank profitability: dynamic panel evidence from South Asian countries," TERG Discussion Papers 338, Graduate School of Economics and Management, Tohoku University.
    • Handle: RePEc:toh:tergaa:338
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    3. Muhammad Farhan Basheer & Waeibrorheem Waemustafa & Mohamad Helmi Bin Hidthiir & Saira Ghulam Hassan, 2021. "Explaining the endogeneity between the credit risk, liquidity risk, and off-balance sheet activities in commercial banks: a case of South Asian economies," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 14(2), pages 166-187.
    4. Md. Shahidul Islam & Shin-Ichi Nishiyama, 2017. "Is this adverse selection or something else to determine the non-performing loans? Dynamic panel evidence from South Asian countries," Discussion Papers 1723, Graduate School of Economics, Kobe University.
    5. Mohammad Ziaul Islam & Shormin Aktar & Mohammad Awal Hossen & Mohammad Mohammad Saiful Islam, 2018. "Non-Performing Loan And Asset Utilization Of Banks: Evidence From Bangladesh," Romanian Economic Business Review, Romanian-American University, vol. 13(4), pages 31-39, december.
    6. Md. Shahidul Islam & Shin-Ichi Nishiyama, 2020. "The Determinants of Net Interest Margins of Commercial Banks: Panel Evidence from China, India and Japan," Discussion Papers 2014, Graduate School of Economics, Kobe University.
    7. Suzan Dsouza & Mustafa Raza Rabbani & Iqbal Thonse Hawaldar & Ajay Kumar Jain, 2022. "Impact of Bank Efficiency on the Profitability of the Banks in India: An Empirical Analysis Using Panel Data Approach," IJFS, MDPI, vol. 10(4), pages 1-18, October.
    8. José Carlos Teixeira & Carlos Vieira & Paulo Ferreira, 2021. "The Effects of Government Bonds on Liquidity Risk and Bank Profitability in Cape Verde," IJFS, MDPI, vol. 9(1), pages 1-23, January.
    9. Md. Shahidul ISLAM & Shin-Ichi NISHIYAMA, 2016. "The Determinants of Non-performing Loans: Dynamic Panel Evidence from South Asian Countries," DSSR Discussion Papers 64, Graduate School of Economics and Management, Tohoku University.
    10. Kaan Kutlay & Okan Veli Safakli, 2018. "The Relationship between Bank Profitability and Micro Variables with Particular Emphasis on Bank Type: The Case of Northern Cyprus," 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. 8(1), pages 26-40, January.
    11. Rana-Al-Mosharrafa & Md. Shahidul Islam, 2021. "What Drives Bank Profitability? A Panel Data Analysis of Commercial Banks in Bangladesh," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 10(2), pages 96-110, April.
    12. mohammed, habib, 2023. "Modeling Determinants of Private Banks Profitability in Ethiopia," MPRA Paper 116699, University Library of Munich, Germany.
    13. Prosper Lamothe & Enrique Delgado & Miguel A. Solano & Sergio M. Fernández, 2024. "A global analysis of bank profitability factors," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-12, December.
    14. Michael Adusei, 2022. "The liquidity risk–financial performance nexus: Evidence from hybrid financial institutions," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(1), pages 31-47, January.
    15. mohammed, habib, 2023. "Modeling Determinants of Private Banks Profitability in Ethiopia," MPRA Paper 116817, University Library of Munich, Germany, revised 25 Mar 2023.
    16. Koju Laxmi & Wang Shouyang & Abbas Ghulam, 2018. "Do Macroeconomic Determinants of Non-Performing Loans Vary with the Income Levels of Countries?," Journal of Systems Science and Information, De Gruyter, vol. 6(6), pages 512-531, December.
    17. Omar Ghazy Aziz & Julie Knutsen, 2019. "The Banks Profitability and Economic Freedom Quality: Empirical Evidence from Arab Economies," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(11), pages 96-110, January.
    18. Serhat Yüksel & Shahriyar Mukhtarov & Elvin Mammadov & Mustafa Özsarı, 2018. "Determinants of Profitability in the Banking Sector: An Analysis of Post-Soviet Countries," Economies, MDPI, vol. 6(3), pages 1-15, July.

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