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


  • Fadzlan Sufian

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


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.

Suggested Citation

  • Fadzlan Sufian, 2011. "Profitability of the Korean Banking Sector: Panel Evidence on Bank-Specific and Macroeconomic Determinants," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 7(1), pages 43-72, January.
  • Handle: RePEc:jec:journl:v:7:y:2011:i:1:p:43-72

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    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    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.
    2. Shinta Amalina Hazrati Havidz & Chandra Setiawan, 2015. "A Comparative Study of Efficiency between Conventional and Islamic Banks in Indonesia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(5), pages 790-804, May.
    3. Daniel Anarfi & Kofi Ampadu Boateng & Kwabena Adu-Ababio, 2016. "Determinants of Return on Equity for a Sustainable Growth of the Manufacturing Industry in the Czech Republic," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 2(1), pages 43-52, November.
    4. repec:eco:journ1:2017-02-77 is not listed on IDEAS
    5. Siudek, Tomasz & Drabarczyk, Katarzyna, 2015. "Wzrost i rozwój gospodarczy a efektywność finansowa banków komercyjnych w krajach Unii Europejskiej," Problems of World Agriculture / Problemy Rolnictwa Åšwiatowego, WydziaÅ‚ Nauk Ekonomicznych, Uniwersytet Warszawski, vol. 15(30).
    6. Feldmann, Horst, 2015. "Banking system concentration and unemployment in developing countries," Journal of Economics and Business, Elsevier, vol. 77(C), pages 60-78.
    7. Tan, Yong, 2016. "The impacts of risk and competition on bank profitability in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 85-110.

    More about this item


    banks; profitability; financial crisis; Korea;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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