Determinants of Bank Profitability in Developed and Emerging Countries

Aim: This study examines Arab and international bank profitability—Return on Assets (ROA) and Return on Equity (ROE)—determinants. It highlights regional performance differences and the main financial drivers of profitability, focusing on macroeconomic shocks. The paper compares Arab and international bank performance and provides new profitability driver insights. It also shows that linear modelling is insufficient to describe ROE in Arab countries and that nonlinear modelling is needed. The discussion suggests ways policymakers and banks can boost profitability and financial resilience. Method: The paper uses “multiple linear regression (MLR)” with panel data from heterogeneous countries over several years. Interest income, capital adequacy, non-interest income, cost-to-income ratio, loan-to-deposit ratio, and non-performing loans are tested for their effect on ROA and ROE in the MLR specifications. Time and regional trends are tested to account for economic crises like the 2008 global financial crisis (GFC) and the 2020 COVID-19 pandemic. Results: Findings exhibit very high regional variation in bank profitability. African countries—e.g., Botswana, Ethiopia, and Malawi—ranked better than European and Asian counterparts on both ROA and ROE. Arab countries such as Iraq, Syria, and Saudi Arabia exhibited high ROA, while Yemen, Egypt, and Djibouti showed high ROE. The research could not find a valid linear regression model for the ROE in the Arab nations, implying complex, non-linear dynamics. The major determinants of profitability are interest income, capital adequacy, non-interest income, and cost-to-income ratio. The macroeconomic shocks also tended to decrease profitability significantly by region.