IDEAS home Printed from https://ideas.repec.org/a/taf/oaefxx/v6y2018i1p1548072.html
   My bibliography  Save this article

Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach

Author

Listed:
  • Eissa A. Al-Homaidi
  • Mosab I. Tabash
  • Najib H. S. Farhan
  • Faozi A. Almaqtari

Abstract

This study aims at finding out the determinants of Indian commercial banks profitability. Profitability of Indian banks is measured by three important variables namely, Return on Assets (ROA), Return on Equity (ROE) and Net Interest Margin (NIM). The study also uses a set of independent variables such as bank-specific factors which include bank size, assets quality, capital adequacy, liquidity, operating efficiency, deposits, leverage, assets management and the number of branches. Pooled, fixed and random effects models and Generalized Method of Moments (GMM) are built on panel data of 10 years for more than 60 commercial banks of India.The study also takes into account Gross Domestic Product (GDP), inflation rate, interest rate and exchange rate as macroeconomic determinants. The results of the study show that all bank-specific factors, except the number of branches, exhibited significant impacts on profitability as measured by NIM. The findings also show that all macroeconomic determinants used in the study are found to be significant with negative impacts on Indian commercial banks profitability. Furthermore, the results show that bank size, number of branches, assets management ratio and leverage ratio are highly significant variables of profitability in the context of Indian commercial banks as measured by ROA. The results give a better insight into the Indian banking sector and the determinants of its profitability

Suggested Citation

  • Eissa A. Al-Homaidi & Mosab I. Tabash & Najib H. S. Farhan & Faozi A. Almaqtari, 2018. "Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1548072-154, January.
    • Handle: RePEc:taf:oaefxx:v:6:y:2018:i:1:p:1548072
    DOI: 10.1080/23322039.2018.1548072
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/23322039.2018.1548072
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/23322039.2018.1548072?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Abdul Rashid & Sana Jabeen, 2016. "Analyzing performance determinants: Conventional versus Islamic Banks in Pakistan," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 16(2), pages 92-107, June.
    2. repec:cup:cbooks:9781107034662 is not listed on IDEAS
    3. Athanasoglou, Panayiotis P. & Brissimis, Sophocles N. & Delis, Matthaios D., 2008. "Bank-specific, industry-specific and macroeconomic determinants of bank profitability," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 121-136, April.
    4. Maria Teresa Medeiros Garcia & João Pedro Silva Martins Guerreiro, 2016. "Internal and external determinants of banks’ profitability: The Portuguese case," Journal of Economic Studies, Emerald Group Publishing, vol. 43(1), pages 90-107, January.
    5. Louzis, Dimitrios P. & Vouldis, Angelos T. & Metaxas, Vasilios L., 2012. "Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portfolios," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1012-1027.
    6. Alper, Deger & Anbar, Adem, 2011. "Bank Specific and Macroeconomic Determinants of Commercial Bank Profitability: Empirical Evidence from Turkey," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 2(2), pages 139-139, April.
    7. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    8. Pasiouras, Fotios & Kosmidou, Kyriaki, 2007. "Factors influencing the profitability of domestic and foreign commercial banks in the European Union," Research in International Business and Finance, Elsevier, vol. 21(2), pages 222-237, June.
    9. Elisa Menicucci & Guido Paolucci, 2016. "The determinants of bank profitability: empirical evidence from European banking sector," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 14(1), pages 86-115, July.
    10. Perera, Anil & Wickramanayake, J., 2016. "Determinants of commercial bank retail interest rate adjustments: Evidence from a panel data model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 45(C), pages 1-20.
    11. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    12. Bose, Sudipta & Saha, Amitav & Khan, Habib Zaman & Islam, Shajul, 2017. "Non-financial disclosure and market-based firm performance: The initiation of financial inclusion," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(3), pages 263-281.
    13. Tesfaye Taddese Lemma & Minga Negash, 2013. "Institutional, macroeconomic and firm-specific determinants of capital structure," Management Research Review, Emerald Group Publishing Limited, vol. 36(11), pages 1081-1122, October.
    14. Bouzgarrou, Houssam & Jouida, Sameh & Louhichi, Waël, 2018. "Bank profitability during and before the financial crisis: Domestic versus foreign banks," Research in International Business and Finance, Elsevier, vol. 44(C), pages 26-39.
    15. Husain AL‐Omar & Abdullah AL‐Mutairi, 2008. "Bank‐Specific Determinants of Profitability: The case of Kuwait," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 24(2), pages 20-34, December.
    16. Dietrich, Andreas & Wanzenried, Gabrielle, 2011. "Determinants of bank profitability before and during the crisis: Evidence from Switzerland," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(3), pages 307-327, July.
    17. Lee, Jeong Yeon & Kim, Doyeon, 2013. "Bank performance and its determinants in Korea," Japan and the World Economy, Elsevier, vol. 27(C), pages 83-94.
    18. Nimesh Salike & Biao Ao, 2017. "Determinants of bank’s profitability: role of poor asset quality in Asia," China Finance Review International, Emerald Group Publishing Limited, vol. 8(2), pages 216-231, December.
    19. Karam Pal Narwal & Shweta Pathneja, 2016. "Effect of bank-specific and governance-specific variables on the productivity and profitability of banks," International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 65(8), pages 1057-1074, November.
    20. Sanderson Abel & Pierre Le Roux, 2016. "Determinants of Banking Sector Profitability in Zimbabwe," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 845-854.
    21. Saona, Paolo, 2016. "Intra- and extra-bank determinants of Latin American Banks' profitability," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 197-214.
    22. Brooks,Chris, 2014. "Introductory Econometrics for Finance," Cambridge Books, Cambridge University Press, number 9781107661455, December.
    23. Robin, Iftekhar & Salim, Ruhul & Bloch, Harry, 2018. "Financial performance of commercial banks in the post-reform era: Further evidence from Bangladesh," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 43-54.
    24. Dietrich, Andreas & Wanzenried, Gabrielle, 2014. "The determinants of commercial banking profitability in low-, middle-, and high-income countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(3), pages 337-354.
    25. Loh, Choon Zhee, 2017. "Specific risk factors and macroeconomic factor on profitability performance an empirical evidence of Top Glove Corporation Bhd," MPRA Paper 78339, University Library of Munich, Germany.
    26. de Mendonça, Helder Ferreira & Silva, Rafael Bernardo da, 2018. "Effect of banking and macroeconomic variables on systemic risk: An application of ΔCOVAR for an emerging economy," The North American Journal of Economics and Finance, Elsevier, vol. 43(C), pages 141-157.
    27. David Roodman, 2006. "How to Do xtabond2," North American Stata Users' Group Meetings 2006 8, Stata Users Group.
    28. Anthony Kyereboah-Coleman, 2007. "The impact of capital structure on the performance of microfinance institutions," Journal of Risk Finance, Emerald Group Publishing, vol. 8(1), pages 56-71, January.
    29. Tan, Yong, 2016. "The impacts of risk and competition on bank profitability in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 85-110.
    30. Vincent Okoth Ongore & Gemechu Berhanu Kusa, 2013. "Determinants of Financial Performance of Commercial Banks in Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 237-252.
    31. Sehrish Gul & Faiza Irshad & Khalid Zaman, 2011. "Factors Affecting Bank Profitability in Pakistan," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 14(39), pages 61-87, March.
    32. Husam RJOUB & Irfan CIVCIR & Nil Gunsel RESATOGLU, 2017. "Micro and Macroeconomic Determinants of Stock Prices: The Case of Turkish Banking Sector," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 150-166, March.
    33. Olalere Oluwaseyi Ebenezer & Wan Ahmad Wan Bin Omar & Syahida Kamil, 2017. "Bank Specific and Macroeconomic Determinants of Commercial Bank Profitability: Empirical Evidence from Nigeria," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 25-38, January.
    34. Mostak Ahamed, M., 2017. "Asset quality, non-interest income, and bank profitability: Evidence from Indian banks," Economic Modelling, Elsevier, vol. 63(C), pages 1-14.
    35. Zampara, K. & Giannopoulos, M. & Koufopoulos, D. N., 2017. "Macroeconomic and industry-specific determinants of Greek bank profitability," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 10(1), pages 13-22, March.
    36. Căpraru Bogdan & Ihnatov Iulian, 2015. "Determinants Of Bank’s Profitability In EU15," Scientific Annals of Economics and Business, Sciendo, vol. 62(1), pages 93-101, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Taslima Akther & Mushfiqur Rahman & Md. Mufidur Rahman, 2023. "Factors influencing commercial bank profitability in Bangladesh: a panel data approach," Future Business Journal, Springer, vol. 9(1), pages 1-20, December.
    2. Sreemanta Sarkar & Debdas Rakshit, 2023. "Factors Influencing the Performance of Commercial Banks: A Dynamic Panel Study on India," FIIB Business Review, , vol. 12(1), pages 85-99, March.
    3. Davis, E Philip & Ali Abdilahi, Ridwa, 2022. "Econometric Analysis of the Determinants of Bank Profitability in Three Major African Counties: Kenya, Nigeria and South Africa," National Institute of Economic and Social Research (NIESR) Discussion Papers 536, National Institute of Economic and Social Research.
    4. Seyed Alireza Athari & Mahboubeh Bahreini, 2023. "The impact of external governance and regulatory settings on the profitability of Islamic banks: Evidence from Arab markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 2124-2147, April.
    5. Maria Elisabete Duarte Neves & Maria Do Castelo Gouveia & Catarina Alexandra Neves Proença, 2020. "European Bank’s Performance and Efficiency," JRFM, MDPI, vol. 13(4), pages 1-17, April.
    6. Hongxing Yao & Muhammad Haris & Gulzara Tariq, 2018. "Profitability Determinants of Financial Institutions: Evidence from Banks in Pakistan," IJFS, MDPI, vol. 6(2), pages 1-28, May.
    7. Muhammad Haris & HongXing Yao & Gulzara Tariq & Ali Malik & Hafiz Mustansar Javaid, 2019. "Intellectual Capital Performance and Profitability of Banks: Evidence from Pakistan," JRFM, MDPI, vol. 12(2), pages 1-26, April.
    8. Muhammad Haris & Yong Tan & Ali Malik & Qurat Ul Ain, 2020. "A Study on the Impact of Capitalization on the Profitability of Banks in Emerging Markets: A Case of Pakistan," JRFM, MDPI, vol. 13(9), pages 1-21, September.
    9. Eissa A. Al-Homaidi & Mosab I. Tabash & Anwar Ahmad & David McMillan, 2020. "The profitability of islamic banks and voluntary disclosure: empirical insights from Yemen," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1778406-177, January.
    10. Sanni Mubaraq & Salami Abdulai Agbaje & Uthman Ahmad Bukola, 2020. "Determinants of Bank Performance in Nigeria: Do they Behave Differently with Risk-Adjusted Returns?," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(3), pages 1-34, September.
    11. Mosab I. Tabash & Eissa A. Al-Homaidi & Anwar Ahmad & Najib H.S. Farhan, 2020. "Factors affecting financial performance of Indian firms: an empirical investigation of firms listed on Bombay Stock Exchange," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 13(2), pages 152-172.
    12. Fazelina Sahul Hamid, 2017. "The Effect of Market Structure on Banks’ Profitability and Stability: Evidence from ASEAN-5 Countries," International Economic Journal, Taylor & Francis Journals, vol. 31(4), pages 578-598, October.
    13. Kumar, Vijay & Thrikawala, Sujani & Acharya, Sanjeev, 2022. "Financial inclusion and bank profitability: Evidence from a developed market," Global Finance Journal, Elsevier, vol. 53(C).
    14. Vikram Jeet & Parvesh Kumar Aspal, 2020. "The Determinant of Financial Performance of Indian Public Sector Banks- A Panel Data Approach," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 285-295, October.
    15. Ozcan Is k & Merve Kosaroglu & Ayhan Demirci, 2018. "The Impact of Size and Growth Decisions on Turkish Banks' Profitability," International Journal of Economics and Financial Issues, Econjournals, vol. 8(1), pages 21-29.
    16. Tan, Yong, 2017. "The impacts of competition and shadow banking on profitability: Evidence from the Chinese banking industry," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 89-106.
    17. Leandro Coghi Bernardelli & Carlos Enrique Carrasco-Gutierrez, 2024. "Macroeconomic, industry-specific and bank-specific determinants of the profitability of Brazilian banks: dynamic panel evidence," Empirical Economics, Springer, vol. 67(2), pages 693-726, August.
    18. Laila Al-Harthy & Revenio Jalagat, Jr. & Karima Sayari, 2021. "Determinants of bank profitability during oil price decline: Evidence from selected banks in Oman," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(8), pages 200-217, December.
    19. Julius Yaw Asamoah & Linda Owusu-Agyei, 2020. "The Impact of ICT on Financial Sector Policy Reforms in Post-Financial crisis era in Ghana: An institutional theory perspective," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 9(2), pages 82-100, April.
    20. Faluk Shair & Na Sun & Sun Shaorong & Firdos Atta & Muhammad Hussain, 2019. "Impacts of risk and competition on the profitability of banks: Empirical evidence from Pakistan," PLOS ONE, Public Library of Science, vol. 14(11), pages 1-27, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:oaefxx:v:6:y:2018:i:1:p:1548072. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/OAEF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.