The Determinants of Commercial Bank Profitability in Sub-Saharan Africa

By Valentina Flamini, Calvin A McDonald, Liliana B. Schumacher. Social Science Research Network, 2009

843 citations recorded by the source corpus.

Bank profits are high in Sub-Saharan Africa (SSA) compared to other regions. This paper uses a sample of 389 banks in 41 SSA countries to study the determinants of bank profitability. We find that apart from credit risk, higher returns on assets are associated with larger bank size, activity diversification, and private ownership. Bank returns are affected by macroeconomic variables, suggesting that macroeconomic policies that promote low inflation and stable output growth does boost credit expansion. The results also indicate moderate persistence in profitability. Causation in the Granger sense from returns on assets to capital occurs with a considerable lag, implying that high returns are not immediately retained in the form of equity increases. Thus, the paper gives some support to a policy of imposing higher capital requirements in the region in order to strengthen financial stability.

Subfields: Accounting, Finance, Information Systems

View Paper: https://www.semanticscholar.org/paper/517f06f26a514700a5e097d9589b2ab0b579a46d

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Citations in the corpus

Comparative study of the performance of Islamic and conventional banks: The case of Malaysia (2013, result): “Flamini et al. (2009) discovered that bigger the size of the banks, the lesser the requirement for profits since lower interest rate will be charged to the borrowers and the bank size is positively correlated with the profits made by banks.”
EFFECTS OF BANKING SECTORAL FACTORS ON THE PROFITABILITY OF COMMERCIAL BANKS IN KENYA (2011, background): “Flamini et al (2009) noted that if high returns are the consequence of market power, this implies some degree of inefficiency in the provision of financial services.”
Bank risk and performance in the MENA region: The importance of capital requirements (2016, neutral): “However, recent research brings novel insights into banks in alternative regions or countries: the Asian (Lee and Hsieh (2013)), the Sub-Saharan African (Flamini et al., 2009), the Middle Eastern and North African (MENA) regions (Ben Naceur and Omran, 2011), and banks in Egypt (Ben Naceur and Goaied”
ESG and financial performance of banks in the MENAT region: concavity–convexity patterns (2021, background): “We model our regressions as follows: FPi,t = b0 + b1 FPi,t−1 + b2 ESGi,t−1 + b3ESG2i,t−1 + b4−9 ∑ Bank-specific factorsi,t + b10−11 ∑ Macroeconomic factorsi,t + b12−13 ∑ Financial development factorsi,t (1) FPi,t = b0 + b1−3 ESG pillarsi,t−1 + b4−6ESG pillars2i,t−1 + b7−12 ∑ Bank-specific factorsi,t”
Determinants of bank profitability in transition countries: What matters most? (2016, background): “Moreover, some studies state that in a non-competitive environment larger banks with significant market shares may enjoy higher profits by offering lower deposit rates (as they are considered to be safer) and keeping high lending rates (Flamini et al., 2009).”
Impacts of Capital Structure on Performance of Banks in a Developing Economy: Evidence from Bangladesh (2017, background): “According to the modern financial intermediation theory, the bank efficiency, derived from economies of scale, is associated with the bank size and implies that a large bank may experience higher profits (Flamini et al. 2009). Jahan (2012) and Rao and Lakew (2012) observed a positive association bet”
The impact of bank capital, bank liquidity and credit risk on profitability in postcrisis period:‎ A comparative study of US and Asia (2019, background): “Athanasoglou, Brissimis, and Delis (2008) and Flamini, Schumacher, and McDonald (2009) favor the positive impact of bank capital on the profitability of banks.”
The Interactional Relationships Between Credit Risk, Liquidity Risk and Bank Profitability in MENA Region (2020, background): “For example, for the Sub-Saharan African context, Flamini et al. (2009) have used a sample of 389 banks in 41 Sub-Saharan African countries over the period of 1998–2006.”
SLEEP AS A DETERMINANT OF ACADEMIC PERFORMANCE OF UNIVERSITY STUDENTS IN OGUN STATE, SOUTH WEST, NIGERIA (2014, background): “Koehn and Santomero (1980), Kim and Santomero (1988) and Athanasoglou et al.”
Ownership, bank size, capitalization and bank performance: Evidence from India (2020, background): “Some of the studies have shown a positive relationship also (Demirguc-Kunt & Huizinga, 1999; Guru et al., 2002; P.P. Athanasoglou et al., 2005; Flamini et al., 2009; Shen et al., 2009; Gul et al., 2011; Sufian, 2011; Tan & Floros, 2012; Trujillo-Ponce, 2013; Tan, 2016; Batten & Vo, 2019).”
Determinants of Bank Profitability: Evidence from Syria (2014, background): “Similarly, Flamini, McDonald, and Schumacher (2009) studied the determinants of bank profitability for the sub-Saharan African countries.”