Analysis of Factors Influencing Bank Profitability: Evidence from the West African Economic and Monetary Union Banking Sector

Abstract

This paper investigates the factors that influence bank profitability. Using static and dynamic panel data techniques, a sample of 86 banks from eight countries making up the West African Economic and Monetary Union over the period 2006-2014 is utilized. framework, the size effect is investigated for both determinants of profitability and CAR models, while the time effect is incorporated in the dynamic framework. In regards to the determinants of bank profitability, the results show evidence of significant effects of bank specific factors, as well as bank macroeconomic factors on profitability in WAEMU except two bank-specific factors (ratios of liquid asset to total deposit and nonperforming asset insignificant. Also, due to less competition in the banking sector, the results point to a significant persistence of profit from year to year. Furthermore, the analysis of the bank size effect confirms evidence of significant economies and discectomies of scale in the bankin sector.

Assessing Macroeconomic Determinants of Banks’ Efficiency in the West African Monetary Zone

“…The significant effect agrees with Msomi (2022), Kohlscheen et al (2018). It however contradicts findings by Shamshur and Well (2019) and Adalessossi and Erdoğan (2019).…”

Factors affecting US Financial Institutions profitability: Empirical Evidence

“…Finally, a more recent study by Adalessossi and Erdogan (2019), using a dataset of 86 banks from eight countries from the West African Economic and Monetary Union over the period 2006-2014, examined bank specific, industry specific and macroeconomic factors that affect bank's profitability. Bank-specific factors examined include measures related to capital, liquidity, efficiency, asset quality and bank size.…”

“…For example, Hoffmann (2011) examined the determinants of the profitability of the US banks and he showed a negative relationship between the capital ratio and bank's profitability. On the other hand, Zhang and Dong (2011) and Adalessossi and Erdogan (2019), found that there is a positive association between capital ratio and profitability, whereas Pasiouras, Tanna, & Zopounidis (2008) find that stricter capital requirements improve bank's cost efficiency but decrease its profit efficiency. Beyond capital ratio, researchers also examined the relationship between financial institution's size and profitability.…”