Internal and external determinants of Iraqi bank profitability

  • Received October 15, 2019;
    Accepted March 16, 2020;
    Published May 13, 2020
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/bbs.15(2).2020.08
  • Article Info
    Volume 15 2020, Issue #2, pp. 79-93
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This work is licensed under a Creative Commons Attribution 4.0 International License

The determinants of bank profitability are very important, as bank profitability significantly affects the economies of countries. This study aims to examine the internal determinants (bank-specific characteristics) and external determinants (macroeconomic factors and government variables) of bank profitability in Iraq. The study uses unbalanced panel data from 18 banks in Iraq for thirteen years, from 2005 to 2017. The relationship is estimated using a fixed effects approach. The study selected 18 conventional banks considering their data availability in the period from 2005 to 2017. Based on the panel data method, the results show that bank size, the equity to total assets and total loans to total assets ratios, GDP growth, and government effectiveness have a significant and positive impact on the profitability of Iraqi banks. Meanwhile, credit risk, inflation, interest rate, unemployment, and political instability have a significant negative influence on bank profitability. To the authors’ knowledge, this study is considered one of the earliest studies of its kind, in which the main factors affecting Iraqi bank profitability are determined. That said, this paper makes a significant contribution to the theoretical literature, the industry, and policymakers, so that the performance of Iraqi conventional banks can be improved.

Acknowledgments
The authors acknowledge the support from Ministry of Higher Education in Iraq, University of Kerbala, AL-Furat AL-Awsat Technical University, and Imam AL-Kadhum College for Islamic Studies. Furthermore, we appreciate the support by Prof. Dr. Sivarajasingham Selliah, Assistant Prof. Dr. Muhammad Abrar Ul Haq, and Dr. Mohammed Hasan.

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    • Table 1. Measurement of variables and a predicted sign
    • Table 2. Descriptive statistics
    • Table 3. Correlation matrices of variables
    • Table 4. Estimation results
    • Conceptualization
      Hamid Mohsin Jadah, Noor Hashim Mohammed Al-Husainy
    • Data curation
      Hamid Mohsin Jadah, Manar Hayder Ali Alghanimi, Noor Sabah Hameed Al-Dahaan
    • Formal Analysis
      Hamid Mohsin Jadah
    • Investigation
      Hamid Mohsin Jadah
    • Methodology
      Hamid Mohsin Jadah, Manar Hayder Ali Alghanimi, Noor Sabah Hameed Al-Dahaan, Noor Hashim Mohammed Al-Husainy
    • Resources
      Hamid Mohsin Jadah, Noor Sabah Hameed Al-Dahaan, Noor Hashim Mohammed Al-Husainy
    • Software
      Hamid Mohsin Jadah, Manar Hayder Ali Alghanimi
    • Supervision
      Hamid Mohsin Jadah
    • Validation
      Hamid Mohsin Jadah
    • Visualization
      Hamid Mohsin Jadah
    • Writing – original draft
      Hamid Mohsin Jadah
    • Writing – review & editing
      Hamid Mohsin Jadah, Manar Hayder Ali Alghanimi, Noor Sabah Hameed Al-Dahaan, Noor Hashim Mohammed Al-Husainy
    • Funding acquisition
      Hamid Mohsin Jadah, Manar Hayder Ali Alghanimi, Noor Sabah Hameed Al-Dahaan, Noor Hashim Mohammed Al-Husainy
    • Project administration
      Hamid Mohsin Jadah