Internal Factors Affecting Bank Profitability

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Many studies have shown that there are several factors that affect the profitability of banks. These factors mainly include the internal factors as is the main focus on this paper but there are several external factors that may or may not have a significant impact on bank profitability. All these factors will be looked at in further detail later in the paper. Internal factors include liquidity, bank size, risk management and many more have a direct relationship with bank profitability. This section will discuss what were the findings of previous studies. All these studies took ROA, ROE and NIM as dependent variables. [Javaid, Anwar, Zaman & Gafoor [2011] Almazari [2014] looked at the internal factors that affected the banks profitability between…show more content…
In this paper bank size, loans, deposits etc were the internal factors taken into consideration. To look at bank size in detail, it mainly refers to the economies or dis economies in scale. Many different papers have included this in their literature when looking at bank profitability. The results have varied. Bank size can have a both direct and indirect effect on bank profitability. A large bank can face diseconomies of scale while a much smaller bank can experience economies of scale. Ordinary Least Squares Estimation was used in this paper. Bank size and liquidity had a significant positive impact on ROA while amongst all the variables considered only credit risk had a negative relationship with ROA. All the hypothesis given in the paper were…show more content…
They included factors like inflation and market capitalization for measuring profitability of banks amongst other things. External factors like GDP and inflation were also included and this falls under macroeconomic headings. Banks with large means and variations in ROCE and ROE were the ones that were larger in size. This meant that these banks had large amounts of equity at their disposal as compared to banks that had just opened and were much smaller in size. The Pooled Least Square method was used to test impact on the dependent variable, which is profitability (ROA). The results showed that a little over a half of the ROA is explained by the independent variables in the study while the remaining percentage can not be explained by these variables. Like the other studies that have been carried out to test what affects profitability, size of the bank has had a significant impact on almost all of them. This will be seen in this study and many others that will be carried out in the future. Economic growth helps fuel profitability leading it to have a positive rather than negative affect. Net Interest Margin stood out in the study. Liquidity, deposits, GDP all had a negative affect on NIM and only inflation had a positive impact on it. [Gul, Irshad and Zaman

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