The impact of bank performance and economic growth on bank profitability: CAMEL model application in middle-income countries

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This paper aims to study the impact of both bank performance and economic growth on bank profitability in 8 middle-income countries from the Middle East and North Africa (MENA) region and MINT countries using the Generalized Method of Moments (GMM) model. Bank profitability is measured by return on assets (ROA) and return on equity (ROE), net interest margin (NIM) is measured by CAMEL model, and economic growth is measured by gross domestic product (GDP) growth. The sample period ranges from 2000 to 2020, and data are extracted from the World Bank financial indicators and database. This paper is supported by the financial intermediation theory. By comparing both MINT and MENA regions, the results show that in the MINT region, ROA is affected most by both asset management and capital adequacy ratio (CAR), while NIM is affected by asset management, liquidity, and management. Regarding the MENA region, ROA and NIM are affected by CAR only. No relationship was found between ROE and any of the CAMEL determinants in both regions. The results show superior performance for MINT than MENA; strong and active capital, increment in assets, credits, and deposits, and enhancement in bank profitability that is reflected in economic growth progress. Both MENA and MINT regions’ profitability (ROA and ROE) is affected by GDP, so their economies are restructuring very well and their banking industries are expected to grow rapidly.

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    • Figure 1. Proposed model
    • Table 1. Variables and measures
    • Table 2. Descriptive data
    • Table 3. KAO Co-integration results
    • Table 4. Regional GMM results
    • Table 5. Summary of the hypotheses and results from the model
    • Table A1. Unit root test results
    • Table B1. GMM panel estimation
    • Table C1. List of abbreviations
    • Conceptualization
      Zakia Abdelmoneim, Mai Yasser
    • Formal Analysis
      Zakia Abdelmoneim, Mai Yasser
    • Funding acquisition
      Zakia Abdelmoneim, Mai Yasser
    • Investigation
      Zakia Abdelmoneim, Mai Yasser
    • Methodology
      Zakia Abdelmoneim, Mai Yasser
    • Project administration
      Zakia Abdelmoneim, Mai Yasser
    • Resources
      Zakia Abdelmoneim, Mai Yasser
    • Software
      Zakia Abdelmoneim, Mai Yasser
    • Supervision
      Zakia Abdelmoneim, Mai Yasser
    • Validation
      Zakia Abdelmoneim, Mai Yasser
    • Visualization
      Zakia Abdelmoneim, Mai Yasser
    • Writing – original draft
      Zakia Abdelmoneim, Mai Yasser
    • Writing – review & editing
      Zakia Abdelmoneim
    • Data curation
      Mai Yasser