The Determinants of Commercial Banking Profitability in Low-, Middle-, and High-Income Countries
44 Pages Posted: 15 Mar 2014
Date Written: January 13, 2014
Using a broad bank-level dataset and the GMM estimator technique described by Arellano and Bover (1995), this paper analyzes how bank-specific characteristics, macroeconomic variables, and industry-specific factors affect the profitability of 10,165 commercial banks across 118 countries over the period from 1998 to 2012. Grouping the countries according to three income levels, we show that the determinants of bank profitability included in our model can explain existing profitability differences among commercial banks in low-, middle-, and high-income countries. The profitability determinants vary quite widely across the different levels of income in terms of significance, sign and size of the effect. The level of income has thus an important impact on the determinants of bank profitability.
Keywords: Banking profitability; Macroeconomic impact on banking profitability; Ownership; Financial crisis; Economic development; Low-income countries; middle-income countries; high-income countries.
JEL Classification: G21, E44, C23, G32, L25, O16
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