Abstract
This thesis investigates three important interrelated aspects in commercial banking: the determinants of bank net interest margins, commercial bank profit persistence and its determinant factors and the interrelationship between bank growth and profitability. The thesis is organized into three research papers that address the above aspects.The first research paper empirically investigates the determinants of commercial bank net interest margins across the world from 2000 to 2004 using General Least Squares (GLS) with random effects estimation methods. We find that high net interest margins tend to be associated with smaller institution, banks that have less liquid assets, have higher equity capital, that are less engaged in non-traditional banking activities, are less managerially efficient, and those that have a higher portion of loan-loss provisions with larger market share. Also, banks operating in banking markets with higher concentration, lower inflation rates, higher real GDP growth, looser regulations and better institutional environments also tend to have lower net interest margins.
The second paper adopts a two-step approach to conduct the analysis of bank profits persistence. In the first step, we use a first order auto-regressive model to arrive at the short run level of profit persistence of banks operating in 104 countries over the period 1995 to 2004, and then in the second step, we regress these derived short run profit persistence parameters on a number of country characteristics. The empirical results suggest that the speed of convergence of bank profits varies across countries and also that advanced countries have significantly higher profits persistence level than those in developing countries. We also find that higher inflation rates and real GDP growth, less developed stock markets, less concentrated banking structures and more advanced institutional development are related to higher bank profits persistence.
The third paper employs a two-equation reduced form vector autoregression (VAR) model to a data set comprising bank size and profit rate series for 1648 commercial banks from 104 countries observed over the 10-year period 1995-2004. The main empirical results are that current bank profit may help to improve future growth since profit is the ultimate source of finance for expansion. In contrast, however, we find no clear evidence that current growth rates have any impact on future profits.
| Date of Award | Oct 2008 |
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| Original language | English |
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| Supervisor | Philip Molyneux (Supervisor) |