Impact of Bank Specific and Macroeconomic Determinants on the Profitability of Commercial Banks : An Evidence from MSM Listed Banks in Sultanate of Oman

Abstract

The role of banks in augmenting the economic growth of a given country is highly acknowledged. Impact of macroeconomic variables on profitability of commercial banks have shown a mutual dependence. Due to oil crisis in the Middle East, Sultanate of Oman's economy had witnessed few market corrections both in money market and capital market. Despite these financial chaos, Sultanate of Oman's commercial banking sector has registered a sustained growth. The aim of the study is to observe the bank specific and macroeconomic determinants of the bank's profitability in Sultanate of Oman over the time period from 2007 to 2016, taken six banks for the study. The bank profitability is measured by return on assets (ROA) and return on equity (ROE) as a function of bank specific determinants such as Assets size, Capital Adequacy, Asset quality, liquidity, Deposit and Income-Expenditure structure; macroeconomic elements like GDP, Inflation rate and Real Interest Rate. Using a balanced panel data set, the study showed that asset size and non-interest income have a positive and significant effect on bank profitability but whereas, Deposits has a negative relationship. With regard to macroeconomic variables, the GDP rate has a positive and real interest rate and inflation rate affects the profitability of banks negatively. This study suggested that banks can improve their profitability through increasing bank size and non-interest income, decreasing credit/asset ratio. In addition, higher GDP can lead to higher profitability in banks.

Factors Determining Profitability of Commercial Banks: Evidence from Nepali Banking Sector

“…They also found an insignificant relationship between economic value-added and inflation with that of the profitability of banks. Ishfaq and Khan (2015) and Chintha (2018) studied cost efficiency, inflation and bank profitability in Pakistan and found an insignificant negative effect of inflation on profitability. Nguku (2016) documented a statistically insignificant impact of inflation on the bank performance.…”

Determinan Profitabilitas Bank Konvensional yang Terdaftar di Otoritas Jasa Keuangan Indonesia

“…Semakin tingginya kredit bermasalah suatu bank menandakan semakin tingginya NPL bank tersebut. Rendahnya tingkat kredit bermasalah menunjukkan tingginya risiko kredit yang akan dihadapi bank (Chintha, 2018). Oleh sebab itu, bank perlu mencari solusi lain untuk menutupi kerugian dari NPL dengan mencari pendapatan lain (Githaiga, 2020).…”

“…Dalam penelitian Aji dan Manda (2021), Budhathoki dan Rai (2020), Githaiga (2020), Kadioglu et al (2017), Nguyen (2020), Salike dan Ao (2017), dan Silaban (2017) dijelaskan bahwa kredit bermasalah memiliki hubungan negatif dan signifikan terhadap profitabilitas bank. Menurut Chintha (2018), kredit bermasalah dengan menggunakan pengukuran hutang terhadap total aset menunjukkan adanya hubungan yang tidak memengaruhi ROA, tetapi memiliki hubungan signifikan positif terhadap ROE. Pradhan (2016) juga membuktikan dalam penelitiannya bahwa NPL memiliki hubungan negatif tetapi tidak signifikan terhadap profitabilitas bank.…”

“…Kecukupan modal (CAR) memiliki peran yang penting dalam profitabilitas bank, terutama dalam rasio pengembalian aset suatu bank (Nguyen, 2020). Tingginya rasio kecukupan modal juga akan mengindikasikan berkurangnya ketergantungan bank terhadap hutang dari pihak luar (Chintha, 2018).…”

“…Deposito merupakan sumber pendanaan bank untuk meningkatkan dana bank dan mengonversikan dana tersebut ke dalam bentuk pinjaman kredit untuk meningkatkan profitabilitas bank (Chintha, 2018). Rasio simpanan terhadap total aset menunjukkan seberapa besar tingkat deposito yang dimiliki oleh bank.…”