Bank profitability and economic growth

Klein, Paul-Olivier; Weill, Laurent

doi:10.1016/j.qref.2022.01.009

Cited by 25 publications

(20 citation statements)

References 54 publications

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“…The results of this study are in line with research (Antypas et al , 2020), (Hamza and Saadaoui, 2018) (Abasimel, 2022; Asteriou and Spanos, 2019; Bernard Azolibe, 2022; Bist, 2018; Boukhatem and Ben Moussa, 2018; Klein and Weill, 2022; Naz and Gulzar, 2022; Saleem et al , 2021; Sharma et al , 2018). Islamic banking is favorably associated with economic growth, even when other growth variables are taken into account.…”

Section: Resultssupporting

confidence: 90%

“…By affecting financial stability, bank profitability can have an impact on economic growth. Numerous studies have demonstrated the link between financial stability and economic growth (Klein and Weill, 2022). The impact of financial sector development on a country’s economic growth has been widely theorized by empirical literature (Asteriou and Spanos, 2019).…”

Section: Introductionmentioning

confidence: 99%

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Contribution of Islamic banks and macroeconomic variables to economic growth in developing countries: vector error correction model approach (VECM)

Kismawadi¹

2023

JIABR

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Purpose The purpose of this study is to examine the effect of Islamic banks (IBs) and macroeconomic variables on economic growth in Saudi Arabia, the United Arab Emirates, Kuwait, Malaysia, Qatar, Bahrain and Bangladesh. Design/methodology/approach Based on these criteria, 672 observations from 24 IBs in Saudi Arabia, the United Arab Emirates, Kuwait, Malaysia, Qatar, Bahrain and Bangladesh were chosen for further investigation. Time series analysis is a well-known method for determining if model variables are stationary and how long-term relationships function through cointegration analysis. This study uses impulse response function (IRF) and variance decomposition (VD) methodologies to demonstrate how each macroeconomic variable shock influences the short-term dynamic path of all system variables. Findings Islamic banking promotes economic growth, especially in Saudi Arabia, the UAE, Kuwait, Malaysia, Qatar, Bahrain and Bangladesh. The findings of the Islamic banking VDC test have a direct and long-term effect on economic growth. Research limitations/implications The literature on this topic can be improved in a number of ways, including by adopting a more robust method to analyze over a longer time frame. By researching specific financing in various areas of the economy, one can gain a deeper understanding of Islamic financing. This will enable the identification of sectors that contribute to economic expansion. Future research should examine combining nations with pure Islam and dual-banking systems to acquire sufficient data. Practical implications This paper has practice and research implications. It recommends adopting the nation’s successful experiment with the Islamic banking system as a model for attaining economic growth through Islamic financing. To replicate this successful experiment, government-based decision-makers and monetary policy experts must collaborate to make Islamic money flows simple and rapid through financial channels that enhance economic growth. Originality/value The study of the contribution of Islamic banking to economic growth in developing nations, particularly those with the highest total assets (TAs) and total deposits (TDs) in the world, remains of modest value. To the best of the authors’ knowledge, this is the first study to empirically assess the impact of IBs in developing nations, particularly those with the highest TAs and TDs in the world, on economic growth as measured by gross domestic product (GDP).

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Section: Resultssupporting

confidence: 90%

Section: Introductionmentioning

confidence: 99%

Contribution of Islamic banks and macroeconomic variables to economic growth in developing countries: vector error correction model approach (VECM)

Kismawadi¹

2023

JIABR

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“…Rapid economic growth increases bank profitability. Therefore, bank profitability can support economic growth by enhancing financial stability (Demirgüç-Kunt and Huizinga 1999; Claeys and Schoors 2007;Klein and Weill 2022). However, the effect of the inflation rate on profitability depends on whether it can be anticipated or not.…”

Section: Findings Of the Sgmm Regressionmentioning

confidence: 99%

Non-Performing Loans and Net Interest Margin in the MENA Region: Linear and Non-Linear Analyses

Alnabulsi

Kozarević

Hakimi

2023

IJFS

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This paper analyzes the linear and non-linear relationship between non-performing loans and bank profitability measured by the Net Interest Margin for a sample of 74 Middle Eastern and North African banks over the period of 2005–2020. We used the System Generalized Method of Moments (SGMM) as a linear approach and the Panel Smooth Transition Regression (PSTR) model as a non-linear approach. The empirical results of the SGMM approach indicated that the ratio of NPLs negatively affects bank profitability. The findings of the non-linear relationship based on the PSTR model confirmed the existence of a threshold effect. We found that below the threshold of 4.42%, the effect of NPLs is negative but not significant, while after surpassing this threshold, the effect becomes negative and significant. As for bank specifics, we revealed that bank size is positively and significantly associated with bank profitability. For industry factors, we found that more bank concentration decreases bank profitability. Regarding the financial environment, we concluded that the global financial crisis exerted a negative impact on bank profitability. Moreover, we revealed a positive and significant impact of GDP on bank profitability as well as a negative impact of inflation on bank profitability. This study has some limitations regarding the social, economic, and financial differences of the whole sample, which includes banks from the Middle East and others from North Africa. Hence, decomposing the whole sample into two sub-samples could improve the results of this paper.

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“…Abu-Alkheil et al (2018) found that liquidity risk affects the placing of some assets in a non-recoverable form, and reducing liquidity risk leads to lower profitability. Klein and Weill (2022) argued that banks' profitability is affected by their asset size, which promotes economies of scale, and larger banks have access to cheaper resources and more reliable funding (Vera-Gilces et al 2020). Table 2 shows the control parameters.…”

Section: Variable Definitionsmentioning

confidence: 99%

Bank Profitability Analysis in China: Stochastic Frontier Approach

Шэнь

Perfilyev

Bufetova

et al. 2023

JRFM

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China’s banking system has a relatively high level of state control, while an important task in regulating the banking system is to manage the profitability of banks. Using the stochastic frontier approach to assess the profitability of commercial banks not only allows for the bank’s ability to generate profits relative to the leading banks in the industry to be assessed but also takes into account the specifics of the management technologies used and the influence of the market environment. This article analyzes the profitability of the Chinese banking system for the period 2012–2020 using the stochastic frontier approach from the position of the central bank. The specifics of the analysis from the bank’s perspective imply a focus on the position of most banks regarding the level of best practices and trends in changing the overall level of profitability. Analysis may be of interest to banking regulators and researchers. In general, the Chinese banking system demonstrates a high level of profit efficiency and cost efficiency, although the dynamics of these indicators are negative. The reason for the negative dynamics is a decrease in the economic growth rate of the economy, the instability of the financial market and ongoing reforms. State-owned commercial banks are becoming highly profitable, while national joint-stock commercial banks are facing increasing competition and reducing efficiency of profitability. City and rural commercial banks maintain a high level of profitability due to state support.

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Bank profitability and economic growth

Cited by 25 publications

References 54 publications

Contribution of Islamic banks and macroeconomic variables to economic growth in developing countries: vector error correction model approach (VECM)

Contribution of Islamic banks and macroeconomic variables to economic growth in developing countries: vector error correction model approach (VECM)

Non-Performing Loans and Net Interest Margin in the MENA Region: Linear and Non-Linear Analyses

Bank Profitability Analysis in China: Stochastic Frontier Approach

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