Profitability of Commercial Banks Revisited: New Evidence from Oil and Non-Oil Exporting Countries in the MENA Region

Abstract

This paper investigates the determinants of commercial bank profitability in oil and non-oil countries of the Middle East and North Africa (MENA) region using data from 11 countries over the period [2004][2005][2006][2007][2008][2009][2010][2011][2012][2013][2014]. Since banks are under no obligation to fill reports to Bankscope database, irregular reporting banks are omitted from the sample and the model is re-estimated using only regular reporting banks, and a comparative analysis between total banks' sample and regular reporting banks' sample is provided. Using the two-step system GMM and fixed effects models, the results indicate that credit risk is negative and highly significant when irregular reporting banks are omitted from the sample particularly in non-oil countries unlike the oil countries case, which indicates that adding irregular reporting banks to the sample could lead to bias in some estimated coefficients if they constitute a considerable percentage of the total banks' sample. Diversification is a key determinant for profitability in oil countries. No enough evidence to support the impact of financial inclusion and financial openness on bank profitability. In addition, the global financial crisis has significantly affected bank profitability in oil countries. Several policy implications are provided to the bank management to follow based on each country group.

Determinants of Profitability in Banking Sector: Empirical Evidence from Bangladesh

“…Several studies found a significant positive and negative impact of GDP on productivity i.e. Abdullah and Tan [50]. As a microeconomic factor, GDP had a positive significant relationship to bank profitability Several studies e. g. Abdullah and Tan [50]; Kajola et al [57]; Aykut [60]; and Natalia et al [61] which confirmed the findings of the present study.…”

“…The results of the time analysed are actually also affected by the previous condition. Similar results were found in pre-crisis and post-crisis studies used same determinants to analyse bank's profitability (López et al [48]; Brei et al [49]; Global financial crisis positively affects the bank profitability (Abdullah and Tan [50]. The banking sector of Bangladesh faced various problems during the financial but was able to overcome it gradually.…”

The Banks Profitability and Economic Freedom Quality: Empirical Evidence from Arab Economies

“…There are banks profitability studies that focus only on Gulf Cooperation Council countries (GCC), the Middle East and North Africa (MENA) region or an individual Arab country 4 . Although these studies show that it is possible to conduct a meaningful analysis of bank profitability, there are few issues not dealt with sufficiently and estimated results could be biased (Al-Omar and Al-Mutairi, 2008, Bennaceur and Goaied, 2008, Amba and Almukharreq, 2013, Mokni et al, 2014, Alkhazaleh and Almsafir, 2014, Murthy Y and Al-Muharrami, 2014, Caporale et al, 2016, Ghosh, 2016, Abdullah et al, 2017. First, the literature principally considers determinants of profitability with no comprehensive selection for the variables set, countries in the sample under investigation and the short time dimension of the panels used in the estimation.…”

Investigating into the dual role of loan loss reserves in banking production process

“…One group of researchers focuses on a two-phase analysis on this topic, with the first phase using the accounting indicators reflecting profitability and then the second phase using regression analysis through different econometric methods, such as fixed effect, random effect and generalised method of moments to examine the impact or interrelationships between bank stability and bank profitability. Within this group, some studies evaluate efficiencies using either a parametric or non-parametric method (Abdullah & Tan, 2017 ; Tan, 2018 ; Nazir et al, 2020 ; Fukuyama & Tan, 2021b ). The second group of researchers, instead of engaging in a two-phase analysis, focus on one phase analysis incorporating risk indicators in the efficiency analysis (Barros et al, 2012 ; Delis et al, 2017 ; Tan et al, 2021 ; Tan & Tsionas, 2020 ).…”