Profitability of commercial banks revisited: new evidence from oil and non-oil exporting countries in the MENA region

  • Received June 24, 2017;
    Accepted August 22, 2017;
    Published October 11, 2017
  • Author(s)
    Nermeen Abdullah ,
    Yong Tan
  • DOI
  • Article Info
    Volume 14 2017, Issue #3, pp. 62-73
  • Cited by
    8 articles

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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

This paper investigates the determinants of commercial bank profitability in oil and non-oil countries of the Middle East and North Africa (MENA) region using data from 11 countries over the period 2004–2014. Since banks are under no obligation to fill reports to Bankscope database, irregular reporting banks are omitted from the sample and the model is re-estimated using only regular reporting banks, and a comparative analysis between total banks’ sample and regular reporting banks’ sample is provided. Using the two-step system GMM and fixed effects models, the results indicate that credit risk is negative and highly significant when irregular reporting banks are omitted from the sample, particularly in the non-oil group, unlike the oil countries case, which indicates that adding irregular reporting banks to the sample could lead to bias in some estimated coefficients if they constitute a considerable percentage of the total banks’ sample. Diversification is a key determinant for profitability in oil countries. No enough evidence to support the impact of financial inclusion and financial openness on bank profitability. In addition, the global financial crisis has significantly affected bank profitability in oil countries. Several policy implications are provided to the bank management to follow based on each country group.

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    • Figure 1. The profitability of oil and non-oil countries of MENA region over the period 2004–2014
    • Figure 1a. Bank deposits to GDP for the MENA region over the period 2004–2014
    • Table 1. Summary of the variable selection
    • Table 2. Descriptive statistics by country category
    • Table 3. GMM estimation results with ROAA as independent variable (total banks sample)
    • Table 4. GMM estimation results with ROAA as independent variable (regular reporting sample)
    • Table 5. Fixed effects results (total banks sample)
    • Table 6. Fixed effects results (regular reporting sample)