Abstract
This study investigates the determinants of the profitability of banks in developing
countries. We estimate multiple linear regression models by the least-squares fixed
effects estimator, using bank-level panel data for 230 banks from 31 countries, for the
years 2011 to 2016. The results of this study show that many bank-specific factors
significantly affect banks’ profitability, including capital ratio, bank size, management
efficiency, credit risk, and diversification. Furthermore, we find that there is a quadratic
relationship between profitability and capital ratio, and there is an optimum level of
capital ratio that maximizes profitability. Similarly, we find a quadratic relationship
between profitability and bank size. The results show that various country-specific
variables significantly affect banks’ profitability, including per capita GDP, inflation,
and corruption perception index. The findings of this study would be useful to the
policymakers in the management of banks
Kiran Lohano, Muhammmad Kashif. (2019) Factors Affecting the Profitability of Banks in Developing Countries, NUML International Journal of Business & Management, Volume 14, Issue 2.
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