Theories in Practice

Sample Solution

A study based on a sample of seventeen Malaysian Commercial Banks between the period of 1986 – 1995 was conducted by Guru Et Al (2002).He attempts to identify the determinants that have a successful impact on deposit banks to help and provide a practical guideline for improved profitability and performance of these financial institutions. The Determinants of Profitability were divided into two Segments, internal determinants (liquidity Capital adequacy),expense management and external Determinants (firm size ,ownership and external economic conditions).The results of the study reveal that on efficient expense management was considered to be more significant in explaining a high bank profitability .Further, the macro-indicators suggested a high interest ratio was directly proportionate to low bank profitability and inflation shows to have a positive effect on bank performance.

Panel Country studies

The panel country studies had a focus on European companies, Molyneux and Thorton (1992) Adreu and Mendes (2002),Goddard Et Al (2009),on developed and developing countries (Demerguc – Kunt and Huizinga 1999,2001),MENA countries (Bashir,2000). Molyneux and Thorton (1992) were the first to investigate on a thorough scale, the determinants of bank profitability on a set of countries. A sample of 18 European countries was used by them to investigate during the period 1986 – 1989.Their findings show a significant correlation between Return of Equity (ROE) and the interest rate levels in each country bank concentration and government ownership. Abreu and Mendes (2002) had investigated the Determinants of bank’s interest margin and profitability of a few European countries in the last decade. Their results suggested that a bank that is well capitalized faces a lower chance of bankruptcy and this translates into better performance and profitability