Determinants of Profitability for Banks Operate in Palestine
Ibrahim Omar Abdul-Aziz Eriqat
ابراهيم عمر عبد العزيز عريقات
This research aims to study the determinants that impact the profitability of banks in Palestine in two ratios (ROA and ROE) over the periods of (2014-2018). It is crucial to mention that variables in this study are categorized into two groups: firstly, internal (bank specific determinants) which are selected in this study as follows: bank size, capital adequacy ratio (CAR), credit risk (CR), management efficacy (E) and liquidity (L). Secondly, external (macroeconomic determinants) which are the annual growth rate (GDP) and inflation rate. This study depends on secondary data that published on Palestinian Monetary Authority (PMA) website as data source for banks specific determinants while economic trend, PMA website and Palestinian Central Bureau of Statistics are used to collect information about the annual inflation rate and annual growth rate (GDP). After collecting data, the study used OLS assumption and two separate regression models, which includes two separate equations in the analyzing phase. Furthermore, as to the effect of internal determinants, the results reflect that all of internal determinants except of capital adequacy ratio are statistically significant and associated to banks profitability. Each of credit risk, management efficiency, and liquidity ratios are negatively associated to profitability, on the other hand the size determinant reflects positive effect on profitability in accordance to ROA ratio measure. In terms of ROE the results showed that only the size ratio and credit risk ratio are significant and associated to profitability. Besides, there is no evidence found that inflation rate and GDP are determinants for profitability, both proxies appear to be insignificant. This study proposes some recommendations to enhance the profitability of banks in Palestine which can be summarized as follows: 1- Growing in assets must be followed in a full exploited of resources. 2- Banks management need to focus on both of quality and quantity of loans and other granted credits for the purpose to reduce the provisions amount. 3- Banks management should efficiently seek out the optimal cost function to reduce costs as possible. 4- Attracting more deposits enhance banks profitability due to their responsibility about enhancing different banks credit activities that positively related with profits.