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The determinants of bank profitability and risk: A random forest approach

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  • Nawaf Almaskati

Abstract

This study is the first to analyse the relative importance of a number of the most cited determinants of bank risk and profitability using random forest’s relative value importance measure. The results show that a bank’s profitability is largely determined by bank-specific factors, while a bank’s risk is predominantly impacted by country-level factors. The results also suggest that proxies for market power and size play significant roles in impacting both the bank’s profitability and its risk profile. The analysis also confirms the presence of a major role for a country’s financial development status and regulatory quality in impacting the bank’s riskiness. Lastly, the analysis confirms the presence of a small number of dominant determinants of a bank’s profitability in contrast to the absence of clear dominant determinants of a bank’s riskiness.

Suggested Citation

  • Nawaf Almaskati, 2022. "The determinants of bank profitability and risk: A random forest approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2021479-202, December.
    • Handle: RePEc:taf:oaefxx:v:10:y:2022:i:1:p:2021479
    DOI: 10.1080/23322039.2021.2021479
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    File URL: http://hdl.handle.net/10.1080/23322039.2021.2021479
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    Citations

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    Cited by:

    1. Karim Belcaid & Mamdouh Abdulaziz Saleh Al-Faryan, 2024. "Determinants of Bank Profitability in the Context of Financial Liberalization: Evidence from Morocco," Business Perspectives and Research, , vol. 12(1), pages 164-180, January.
    2. Tekalign Negash Kebede, 2025. "Unveiling the drivers of bank profitability: insights from Ethiopian banks," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-16, December.
    3. Dan Gabriel Dumitrescu & Stefania Cristina Curea & Cristiana Ioana Coman & Anca Gabriela Ilie & Renate Bratu & Alma Pentescu, 2025. "Environmental Reporting, Financial Fundamentals and Company Valuation: Insights from the Industrial Sector," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 27(70), pages 731-731, August.
    4. Karkowska, Renata & Korzeb, Zbigniew & Niedziółka, Paweł, 2025. "Inflation's dual impact on European banks' profitability," Journal of Policy Modeling, Elsevier, vol. 47(1), pages 64-77.
    5. Pavel Jankulár & Zdeněk Tůma, 2026. "Changes to Bank Capital Ratios and Their Drivers Prior and During COVID‐19 Pandemic: Evidence From the European Union," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 31(1), pages 763-788, January.
    6. Clement Olalekan Olaniyi & Titus Ayobami Ojeyinka & Xuan Vinh Vo & Mamdouh Abdulaziz Saleh Al‐Faryan, 2023. "Do business strategies vary across firms in the banking industry? New perspectives from the bank size–profitability nexus," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 525-544, January.

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