The impact of bank performance and economic growth on bank profitability: CAMEL model application in middle-income countries
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Date
2023-09
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Volume Title
Type
Article
Publisher
Business Perspectives
Series Info
Banks and Bank Systems;Volume 18, Issue 3, 2023
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Abstract
This paper aims to study the impact of both bank performance and economic growth
on bank profitability in 8 middle-income countries from the Middle East and North
Africa (MENA) region and MINT countries using the Generalized Method of
Moments (GMM) model. Bank profitability is measured by return on assets (ROA)
and return on equity (ROE), net interest margin (NIM) is measured by CAMEL mod-
el, and economic growth is measured by gross domestic product (GDP) growth. The
sample period ranges from 2000 to 2020, and data are extracted from the World Bank
financial indicators and database. This paper is supported by the financial intermedia-
tion theory. By comparing both MINT and MENA regions, the results show that in the
MINT region, ROA is affected most by both asset management and capital adequacy
ratio (CAR), while NIM is affected by asset management, liquidity, and management.
Regarding the MENA region, ROA and NIM are affected by CAR only. No relationship
was found between ROE and any of the CAMEL determinants in both regions. The
results show superior performance for MINT than MENA; strong and active capital,
increment in assets, credits, and deposits, and enhancement in bank profitability that
is reflected in economic growth progress. Both MENA and MINT regions’ profitability
(ROA and ROE) is affected by GDP, so their economies are restructuring very well and
their banking industries are expected to grow rapidly.
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Keywords
MENA, MINT, Generalized Method of Moments (GMM) model, CAMEL, GDP growth