Journal of Emerging Trends in Economics and Management Sciences: Home

Abstract:
The main purpose of this study is to examine the key determinants of the profitability of commercial banks, Islamic as well conventional in Bahrain. Bahrain serves as a major banking center in the Arabian Gulf and commercial banks play a leading role in the banking sector of Bahrain. In the global banking system, Bahrain occupies an important position as a key offshore banking hub and is renowned as a leading center of Islamic finance. The study uses balanced panel data sets of commercial banks retrieved mainly from the publications of Bahrain Bourse. The study was performed using 8 years of data for the period from 2006 to 2013.The study uses macroeconomic and financial structure indicators including inflation rate, interest rate, exchange rate, economic growth in addition to the banks internal characteristics. The findings reveal that capital adequacy ratio, the global financial crisis of 2008, capital strength, interest rate, debt ratio, and type of the bank are the main determinants of commercial banks profitability measured by ROE. The study found that ROA as a proxy of profitability is inferior to ROE. This implies that management would behave to place more emphasis on ROE rather than ROA when gauging bank performance. The study is valuable to academicians, bankers, policy-makers and bank managers as it fills the gap in the literature by providing up-to-date evidence of the determinants of profitability of banks in Bahrain. The findings of this study may possibly make a contribution to the body of knowledge governing finance decisions in this milieu. It contributes to the contentious academic debate with respect to which bank-specific and macroeconomic variables drive bank profitability ? and which do not.

Keywords: multiple-regression, capital strength, debt ratio, economic growth, interest rate, capital adequacy

Download full paper