Determinants of Bank Profitability and Performance
Summary
Bank profitability and performance are determined by an interplay of bank-specific characteristics, macroeconomic conditions and regulatory frameworks. Internally, factors such as capital adequacy, asset quality, operational efficiency, funding structure and portfolio diversification shape returns. Strong capital buffers and high-quality assets reduce vulnerability to credit shocks, while streamlined cost structures and digitalised operations enhance margins. Liquidity management and funding costs play a pivotal role in maintaining net interest spreads under varying market conditions. Externally, economic growth, interest rate cycles and competitive intensity influence lending rates and fee income. A stable macroeconomic environment and supportive regulatory oversight can bolster confidence, yet evolving prudential standards may impose higher compliance burdens. Technological innovation, including artificial intelligence and data analytics, is emerging as a catalyst for efficiency gains and risk management. Concurrently, environmental and sustainability considerations are reshaping lending practices, with green finance affecting risk-return profiles. Understanding these determinants is essential for policymakers, bank managers and investors seeking to optimise performance and safeguard financial stability.
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Determinants of Bank Profitability and Performance publication trend
The graph below shows the total number of articles in determinants of bank profitability and performance across all publications each year (not limited to Nature Index journals).
Technical terms
Return on Assets (ROA): A profitability ratio measuring net income relative to total assets.
Net Interest Margin (NIM): The difference between interest income generated and interest paid relative to earning assets.
Non-performing Loans (NPL): Loans on which borrowers are not making interest or principal payments according to agreed terms.
Regulatory Capital: The minimum capital a bank is required to hold by regulators to absorb losses.
Generalised Method of Moments (GMM): An econometric technique used to estimate parameters in models with potential endogeneity or unobserved heterogeneity.
References
- Transforming banking: Examining the role of AI technology innovation in boosting banks financial performance. International Review of Financial Analysis (2024).
- Size matters: analyzing bank profitability and efficiency under the Basel III framework. Financial Innovation (2023).
- The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets Institutions and Money (2016).
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