Determinants of Bank Asset Quality and Profitability

Applied Economics Quarterly, Vol. 63, No. 1, 2017

Posted: 9 Oct 2017

Date Written: October 7, 2017

Abstract

Determinants of default risk of banks in emerging economies have so far received inadequate attention in the literature. Using panel data techniques, this paper seeks to study the determinants bank asset quality and profitability using robust datasets for the period from 1997–2009. The findings of the study reveal some interesting inferences contrary to the established perceptions. Priority sector credit has been found to be not significant in affecting the NPAs contrary to the general perception and similar is the case with that of rural branches implying that aversion to rural credit is a falsely founded perception. Bad debts are dependent more on the performance of the industry than other sectors of the economy. Public sector banks have shown significant performance in containing bad debts private banks have continued to be stable in containing the bad debts as they have better risk management procedures and technology, which definitely allows them to finish up with lower levels of NPAs. Further, investigating the effect of determinants on profitability it is established that while capital adequacy and investment activity significantly affect the profitability of commercial banks apart from other accepted determinants of profitability, asset size has no significant impact on profitability.

Suggested Citation

P.M., Vighneswara Swamy, Determinants of Bank Asset Quality and Profitability (October 7, 2017). Applied Economics Quarterly, Vol. 63, No. 1, 2017. Available at SSRN: https://ssrn.com/abstract=3049260

Vighneswara Swamy P.M. (Contact Author)

IBS-Hyderabad ( email )

62, Nagarjuna Hill
Panjagutta
Hyderabad, TX AP 501504
India

Register to save articles to
your library

Register

Paper statistics

Abstract Views
124
PlumX Metrics