An empirical analysis of the determinants of the U.S. banks’ profitability

  • Received July 4, 2021;
    Accepted December 17, 2021;
    Published December 27, 2021
  • Author(s)
  • DOI
    doi http://dx.doi.org/10.21511/bbs.16(4).2021.17
  • Article Info
    Volume 16 2021 , Issue #4, pp. 209-217
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This study investigates the determinants of the profitability of U.S. banks. Employing quarterly data, this paper further examines the historical and recent trends for all U.S. banks from 1996 to 2019 in the relationship between return and assets (ROA) and other bank internal (or endogenous) profitability contributors such as net interest margin (NIM), loan loss reserves, ratio of non-performing loans to gross loans, and external (or exogenous) macroeconomic variables, such as the 30-year average mortgage rate, Gross Domestic Product (GDP) economic growth rate, unemployment rate, interest rate, inflation rate and openness (i.e., exports + imports/GDP) by using the Generalized Method of Moments (GMM) estimator technique. The results reveal that bank-specific variables, including net interest margin, loan loss reserves and non-performing loans, have a significant impact on bank profitability in the United States. Similarly, the results show that macroeconomic variables, namely the average mortgage rate, economic growth, and unemployment rate, exert significant effects on the U.S. banks’ profitability. The results further indicate that changes in openness are detrimental to bank profitability. The implications are discussed.

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    • Table 1. Descriptive statistics
    • Table 2. Pearson correlation coefficients
    • Table 3. Modified Dickey-Fuller unit root tests
    • Table 4. GMM estimation results (dependent variable: ROA)
    • Conceptualization
      Chiaku Chukwuogor
    • Data curation
      Chiaku Chukwuogor, Emmanuel Anoruo, Ikechukwu Ndu
    • Funding acquisition
      Chiaku Chukwuogor
    • Investigation
      Chiaku Chukwuogor
    • Methodology
      Chiaku Chukwuogor, Ikechukwu Ndu
    • Resources
      Chiaku Chukwuogor
    • Project administration
      Chiaku Chukwuogor
    • Supervision
      Chiaku Chukwuogor, Emmanuel Anoruo
    • Validation
      Chiaku Chukwuogor, Ikechukwu Ndu
    • Visualization
      Chiaku Chukwuogor, Emmanuel Anoruo, Ikechukwu Ndu
    • Writing – original draft
      Chiaku Chukwuogor, Emmanuel Anoruo, Ikechukwu Ndu
    • Writing – review & editing
      Chiaku Chukwuogor, Emmanuel Anoruo, Ikechukwu Ndu
    • Formal Analysis
      Emmanuel Anoruo, Ikechukwu Ndu
    • Software
      Emmanuel Anoruo