Determinants of Commercial Bank Profitability: South Asian Evidence
Abstract
This study investigates the bank-specific and other determinants of commercial bank profitability in selected South Asian countries (Bangladesh, India, Pakistan and Sri Lanka). The single-equation, dynamic panel data procedure employed accommodates explicit measures of production efficiency, industry competition, profit persistence and country-specific differences in governance. The findings reveal profit persistence in South Asian banking markets. Even though increasing competition exerts negative pressure on bank profitability, high industry concentration still allows these banks to earn higher profits. The well-capitalised banks and those with relatively more efficient production processes are the more profitable. South Asian banks also seem to experience economies of scale as bank size is positively associated with profitability. The results also indicate that slack legal systems in these countries (leading to inferior contract enforcement) positively affect profits as banks probably require higher risk premiums on their loan contracts.Submission of an article implies that the work described has not been published previously (except in the form of an abstract or as part of a published lecture or academic thesis), that it is not under consideration for publication elsewhere, that its publication is approved by all authors and tacitly or explicitly by the responsible authorities where the work was carried out, and that, if accepted, will not be published elsewhere in the same form, in English or in any other language, without the written consent of the Publisher. The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive proofs for approval before publication.
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