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ABSTRACT
Commercial banks have always played an important role in the tremendous economic development that has taken place in the region over recent years. In the light of these developments, the objective of this review is to identify the determinants of profitability of commercial banks.
The determinants of profitability and theories thereof used in this review are those frequently described in conventional banking studies and literature. The profitability determinants were basically divided into two main categories, namely the internal determinants and the external determinants. The internal determinants include management controllable factors such as liquidity, investment in securities, investment in subsidiaries, loans, non-performing loans, and overhead expenditure. Other determinants such as savings, current account deposits, fixed deposits, total capital and capital reserves, and money supply also play a major role in influencing the profitability.
Similarly, external determinants include those factors which are beyond the control of management of these institutions such as interest rates, inflation rates, market growth and market share.
Keywords: Bank profitability; commercial banks; balance sheet;
INTRODUCTION
The paper starts with a review of the literature on the determinants of commercial bank profitability. The determinants of bank profitability in its broadest sense were divided into 3 main parts, the internal and external determinants, the hypotheses related to the profitability of commercial banks. It is the purpose of this paper to review the literature that has been written on the various aspects of profitability of commercial banks.
PROFITABILITY DETERMINANTS OF COMMERCIAL BANKS
Bourke (1986) indicated that the determinants of commercial bank Profitability can be divided into two main categories namely the internal determinants which are management controllable and the external determinants which are beyond the control of the management of these institutions.
The internal determinants can be further subdivided as follows:
a) INTERNAL DETERMINANTS
* Financial Statements variables
* Non- financial statement variable
The external determinants on the other hand can be listed as follows
b) EXTERNAL DETERMINANTS
* Financial De-regulations
* Impact on competitive conditions
* Concentration
* Market Share
* Interest Rate on profitability
* Ownership
* Scarcity of Capital and Inflation
THE INTERNAL DETERMINANTS
Guru and Bala. S (1998), indicated that the internal determinants are those management controllable factors which account for the inter-firm differences in commercial bank profitability, given...