The Effect of Banking Soundness on Profitability of Commercial Banks: Threshold Panel Regression Approach

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FATAHI SHAHRAM; REZAEI MEHDI; Jahed Tahereh

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Journal: JOURNAL OF FINANCIAL MANAGEMENT STRATEGY Year:2017 | Volume:5 | Issue:1 (16) Page(s): 29-50

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Title

The Effect of Banking Soundness on Profitability of Commercial Banks: Threshold Panel Regression Approach

Author(s)

FATAHI SHAHRAM | REZAEI MEHDI | Jahed Tahereh | Issue Writer Certificate

Keywords

Banking SoundnessQ2

Capital AdequacyQ1

ProfitabilityQ2

Panel RegressionQ2

CAMEL IndexQ2

Abstract

The Profitability of banks is a crucial factor for economic stability. Banks, as financial and service institutions, have a determinant role in cash and wealth flow of society; hence, they have a considerable position in economy. Considering global attempts in promoting the quality of supervision on banks and banks’ direction within financial health, it is vital to study the indicators of Banking Soundness and their effects on the efficiency of commercial banks. This study aims to evaluate the performance of commercial banks in Iran through an accurate method based on literature of CAMELS indicators. Accordingly, the effect of Banking Soundness indexes on the Profitability of commercial banks was assessed and evaluated during 2005-2014. For this purpose, Hansen threshold Panel Regression approach (1999) was used and the obtained results indicate that Capital Adequacy at appropriate threshold (above 10. 23%) has positive and significant effect on the Profitability of commercial banks in Iran while lower Capital Adequacy than 10. 23% threshold has a negative and significant effect on the Profitability of banks. Also, the results imply a significant effect of other Banking Soundness criteria such as the quality of banks assets, management quality, quality of liquidity and sensitivity to market risk on the Profitability of studied banks.

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APA: Copy

FATAHI, SHAHRAM, REZAEI, MEHDI, & Jahed, Tahereh. (2017). The Effect of Banking Soundness on Profitability of Commercial Banks: Threshold Panel Regression Approach. JOURNAL OF FINANCIAL MANAGEMENT STRATEGY, 5(1 (16) ), 29-50. SID. https://sid.ir/paper/261619/en

Vancouver: Copy

FATAHI SHAHRAM, REZAEI MEHDI, Jahed Tahereh. The Effect of Banking Soundness on Profitability of Commercial Banks: Threshold Panel Regression Approach. JOURNAL OF FINANCIAL MANAGEMENT STRATEGY[Internet]. 2017;5(1 (16) ):29-50. Available from: https://sid.ir/paper/261619/en

IEEE: Copy

SHAHRAM FATAHI, MEHDI REZAEI, and Tahereh Jahed, “The Effect of Banking Soundness on Profitability of Commercial Banks: Threshold Panel Regression Approach,” JOURNAL OF FINANCIAL MANAGEMENT STRATEGY, vol. 5, no. 1 (16) , pp. 29–50, 2017, [Online]. Available: https://sid.ir/paper/261619/en

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