Master of Science in Economics
Faculty / School
Faculty of Business Administration (FBA)
Department of Economics
Date of Award
Dr. Mohammad Nishat
Committee Member 1
Dr. Mohammad Nishat, Institute of Business Administration, Karachi
This paper investigates the determinants of banks’ profit in developing countries in the post financial crisis period (2009-2015), using a comprehensive set of bank- and country- specific explanatory variables. This is the first time banking determinants have been explored for developing countries as a whole unlike previous researches which have either focused on a single developing country or on a particular developing region.Our sample includes 60 commercial banks picked from 12 developing countries namely,Bangladesh, China, Egypt, India, Kenya, Malaysia, Nigeria, Pakistan, the Philippines, Srilanka, Turkey and Thailand. We have used the standard set of bank performance indicators that includes Net Interest Margin (NIM), Return on Assets (ROA) and Return on Equity (ROE) to proxy profit. As profit shows a tendency to persist over time (as confirmed by a significant coefficient of all lagged dependent variables) and also exhibits a near random walk process, we have employed system GMM to estimate our models. The results reveal that a higher dependency on low-cost deposits boost NIM and ROA. An increased reliance on non-core sources of generating income has a positive impact on ROA and ROE.Further, illiquid conditions, as indicated by the variable ‘Net loans to total Assets’ also favor ROA and ROE. Capital Adequacy ratio also has a positive impact on ROA. Non-Operating Expenses to total Income however, inhibits profit.Further, Net Infection Ratio, Provision Coverage Ratio, Bank Size, Per Capita GDP Growth Rate, Inflation and Corruption Perception Index take an insignificant coefficient.The only macroeconomic variable that takes a significant coefficient is Broad Money Growth Rate. It has a positive impact on ROA and ROE.
Sharieff, S. (2017). Determinants of profit made by banks in developing countries (Unpublished master's thesis). Institute of Business Administration, Pakistan. Retrieved from https://ir.iba.edu.pk/etd/75
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