FINANCIAL SOUNDNESS AND BANK PROFITABILITY IN SUB-SAHARAN AFRICA: A COMPARATIVE ANALYSIS OF THE SADC AND ECOWAS ECONOMIES
Unknown authors
Aug 2026· American International Journal of Business and Management Studies· Vol 8, pp. 14-26· 0 citations
Abstract
The SSA regional financial system has undergone a significant transformation, shifting banks from fragmented to integrated, technologically advanced banking. However, banks still face structural challenges, such as underdeveloped bond markets, high transaction costs, and volatile macroeconomic cycles. This study examines how financial soundness indicators affect the profitability of commercial banks, comparatively across the SADC and ECOWAS blocs in Sub-Saharan Africa. A macro-panel CAMEL rating dataset covering 15 countries over 16 years (2009-2024) is used for the analysis, employing the System Generalized Method of Moments (GMM). The results indicate a persistent, path-dependent pattern in bank earnings across both sub-regions. A key regulatory concern emerges, as Capital Adequacy has a significant negative impact on banks’ returns in SADC [Asset returns (ROA) – (β= -0.214, p < 0.05) and equity returns (ROE) – (β= -0.568, p < 0.01), yet it is not statistically significant for equity returns in ECOWAS (β-0.312 (p<0.10), suggesting that West African banks often treat capital requirements as passive compliance. Asset Quality deterioration severely reduces banks’ returns in both regions, especially in ECOWAS. Management Inefficiency uniformly lowers earnings, while Liquidity shows a trade-off: it positively affects ROA (β = 0.131, p < 0.05) and ROE (β = 0.462, p < 0.05) but negatively affects EPS (β = -0.218, p < 0.1) in SADC, but is insignificant across ECOWAS. Real GDP growth and Economic Freedom positively influence banks’ profitability across SADC and ECOWAS. This study concludes with specific regional recommendations for risk-based capital regulations, stock market integration, and digitized cross-border systems.
The present paper aims to investigate the relationship between non-performing assets (NPAs) and profitability in Indian commercial banks. Focusing on the major economic disruptions, namely, the global financial crisis, demonetization and the COVID-19 pandemic, it examines their role in structurally reshaping the NPA-profitability nexus.
Our dataset comprised a balanced panel of 30 public and private sector commercial banks in India covering the period from 2004 to 2024. We applied Bai–Perron multiple breakpoint tests and Chow tests to identify regime shifts. Static panel regressions with Heteroskedasticity and Autocorrelation Consistent-corrected ordinary least squares and dynamic system generalized method of moments (GMM) estimations are employed to address heteroskedasticity, autocorrelation and endogeneity. The model incorporates bank-specific factors, market concentration indicators, macroeconomic variables and an interaction term between inflation and broad money (BM).
The findings reveal multiple statistically significant structural breaks corresponding to major economic shocks. NPAs consistently exert a significant negative impact on profitability across all regimes, while bank size positively influences return on assets, particularly during crisis periods. Market concentration yields mixed and regime-dependent effects. The interaction between inflation and BM significantly moderates profitability during transitional phases, highlighting the role of inflation-adjusted liquidity conditions in shaping bank performance.
The findings suggest that bank managers should strengthen credit risk monitoring and adopt proactive asset quality management, especially during periods of inflationary liquidity expansion. The policymakers and regulators can benefit from implementing countercyclical capital buffers and dynamic stress-testing frameworks tailored to structural shocks. However, our results should be interpreted with caution as we excluded foreign banks from our dataset and focused solely on Indian commercial banks, which may limit cross-country generalizability. Future research could extend the framework to comparative emerging-market settings.
To the best of our knowledge, this study is the first attempt to integrate structural break analysis with dynamic GMM estimation and to introduce inflation-adjusted liquidity as a moderating mechanism in the NPA-profitability relationship in an emerging economy context.
Faiza Rehman, Mohammad Ammar Ahsan, S. Akhtar et al.· Journal of Financial Regulat...· 0 citations
This study investigates the impact of electronic banking services on the profitability of Vietnamese commercial banks over the period 2014–2023. Using an unbalanced panel dataset of 25 banks (up to 250 bank-year observations, with missing values in the e-banking index addressed via linear interpolation and trend extrapolation) and applying System Generalised Method of Moments (Sys-GMM) to control for endogeneity and dynamic persistence in profitability, we find that the e-banking index (EBANKIT) exerts a statistically significant negative short-run effect on Return on Assets (ROA) (β = -0.0014, p = 0.016), consistent with the productivity paradox hypothesis. ICT investment has the strongest positive effect (β = 0.2373, p = 0.035), supporting the Resource-Based View. Capital adequacy (CAR), bank size (SIZE), and non-performing loans (NPL) also exhibit expected directional effects. The lagged ROA coefficient (0.711) confirms strong profit persistence. Findings suggest that Vietnamese banks' digital investments require a gestation period before translating into profitability gains, with important implications for management and policymakers.
Khanh Vo Gia Huynh, Hằng Thị Thu Võ, Linh Thi Mai Nguyen et al.· Tạp chí Khoa học Đại học Côn...· 0 citations
This paper re-examines the determinants of profitability in Bangladeshi private commercial banks, using a panel-corrected standard errors (PCSE) analysis of ten listed banks over 2014–2023 (n = 100 bank-year observations), together with a post-sample assessment of the sector's extraordinary deterioration through 2024–2025. Profitability is measured by return on assets (ROA), with return on equity (ROE) and net interest margin (NIM) used as robustness checks. Results show that capital adequacy and management efficiency significantly enhance profitability, while asset-quality deterioration and non-performing loans (NPLs) exert strong negative effects; liquidity management and bank size are largely insignificant, pointing to inefficiencies in deployment and scale. GDP growth is statistically negligible within-sample and inflation shows mixed effects, underscoring structural weaknesses in financial intermediation. A winsorization check (1st/99th percentiles) confirms that the capital-adequacy and NPL effects are stable to outlier treatment, while the management-efficiency effect is more sensitive. Extending the analysis with Bangladesh Bank, IMF, and World Bank data through 2025 shows that the sector-wide NPL ratio rose from below 10 percent in 2023 to more than 30 percent by late 2025, alongside a collapse in aggregate capital adequacy a trajectory consistent with, and considerably amplifying, the credit-quality channel identified in the panel results. The study contributes methodologically by applying PCSE in a South Asian context, and offers policy implications for strengthening credit discipline, addressing regulatory forbearance, and improving banking efficiency.
Md. Jahidul Islam, M. Moniruzzaman, A. Haq et al.· Global Disclosure of Economi...· 0 citations
The financial performance of commercial banks remains a subject of considerable interest in both academic and policy circles, particularly in emerging markets where the banking sector constitutes a critical pillar of economic intermediation. This study examines the determinants of financial performance among Tier II and Tier III commercial banks in Kenya, using data extracted from audited financial statements for the fiscal year ending December 2025. The study employs Return on Assets (ROA) as the dependent variable and considers five bank specific explanatory variables: the Non-Performing Loan (NPL) ratio, Loan to Deposit ratio, Capital Adequacy ratio, Net Interest Income to Assets ratio and Operating Income to Assets ratio. Using Ordinary Least Squares (OLS) regression analysis on a sample of 28 banks, the study finds that the model explains approximately 70.83% of the variation in ROA (R² = 0.7083; Adj. R² = 0.6419), which is statistically significant at the 1% level (F (5, 22) = 10.68; p < .0001). The NPL ratio exerts a significant negative effect on performance (β = −0.0408; p = 0.006), while capital adequacy (β = 0.0913; p = 0.026) and operating income efficiency (β = 0.4214; p = 0.012) are significant positive drivers of ROA. The Loan to Deposit ratio and Net Interest Income ratio do not yield statistically significant effects. Diagnostic tests confirm the absence of multicollinearity (Mean VIF = 1.74), homoskedasticity (Breusch-Pagan p = 0.3153) and correct model specification (Ramsey RESET p = 0.8894). The findings suggest that beyond bank size, credit quality management, capital strength and income diversification are the primary levers of financial performance in Kenya's mid-tier banking segment.
Keywords: Financial performance, ROA, Tier II and III banks, NPL ratio, capital adequacy, OLS regression.
Yegon Kiprotich Festus, Charles Githira· African Development Finance...· 0 citations
This study examines the relationship between the six CAMELS components and the financial performance of Middle Eastern banks during 2020–2024. Bank financial performance is assessed using return on equity (ROE), return on assets (ROA), return on deposits (ROD), and profit margin (PM). The analysis uses an unbalanced panel dataset comprising 246 bank-year observations from 50 banks across ten Middle Eastern countries. The results show that earnings have a positive and statistically significant relationship with all four measures of financial performance. Capital adequacy is also positive and significant in the ROA, ROD, and PM models, but not in the ROE model. Asset quality has a significant negative relationship only with PM, while management efficiency has a significant positive relationship only with ROA. Liquidity and sensitivity to market risk are not statistically significant at the 5% level in any of the four models. The findings indicate that the importance of individual CAMELS components varies depending on the financial performance measure used. By examining all six CAMELS components across four performance indicators within a multi-country panel framework, the study provides further evidence on CAMELS-based bank performance assessment in Middle Eastern banking systems. The results reflect statistical associations within banks over time and should not be interpreted as causal effects. The scientific originality of this study lies in its comprehensive examination of all CAMELS components across multiple financial performance indicators within Middle Eastern banking systems, providing new empirical evidence on the differential role of each component in explaining bank performance.
Faeyz Abuamria, Majd Salameh· Journal of Palestine Ahliya...· 0 citations
This study investigates reduced-form dynamic linkages among banking performance, financial stability, economic development, financial development, and carbon emissions across a nine-country BRICS+ analytical sample during 2000–2021. Using a Panel Vector Autoregression-Generalized Method of Moments (PVAR-GMM) framework, the study examines how micro-banking indicators and macro-structural environmental conditions predict one another over time. The findings indicate a path-dependent system. Credit expansion initially predicts higher emissions, while its second-lag response is negative; this sign reversal is interpreted as a short- to medium-run adjustment pattern. Bank stability and bank income structure are also dynamically linked to emissions, but the results are treated as predictive associations supported by impulse response function analysis. Environmental deterioration is associated with subsequent pressure on non-interest income, suggesting that climate-related transition and physical risks may affect banking performance. Overall, the evidence implies that green financial transition in BRICS+ economies depends not only on expanding credit but also on improving credit allocation, risk pricing, banking resilience, and climate-related supervisory capacity.
T. Hoang, T. Nguyen, Ho-Ang-Gia-Bao Ho· Discover Environment· 0 citations
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