Profitability of Public and Private Commercial Banks in Algeria: Panel data analysis during 1997-2012

Abstract

The Algerian banking system has experienced since the early 90s a series of metamorphoses, characterizing different stages of reform and compliance with international standards. The question remains about the performance of commercial banks in Algeria. In this study we examine the relationship between profitability of commercial banks and two types of factors internal and external, for a sample of 10 public and private Algerian banks over 1997-2012. We use the regression model with unbalanced panel data analysis and CAMEL approach, but this study used four internal indicators: capital adequacy, assets quality, management efficiency and liquidity at used proxies for performance of banks and only two external indicators GDP and inflation rate.

After regression analysis of unbalanced panel with three methods POLS, fixed effects and random effects we conclude that the capital adequacy, management efficiency and liquidity indicators are significant effect profitability of commercial banks in Algeria in the period of study. The management efficiency and liquidity indicators are positively related with profitability, and the capital indicator is negatively related with profitability. The assets quality, GDP and inflation have not any significant effect on profitability of commercial banks in Algeria in the period of study. The Acceptance of fixed effects model shows that the relationship varies from one bank to another, due to the different characteristics of each bank.

Keywords: Commercial banks, CAMEL approach, macroeconomic indicators, Panel data, Algeria.

JEL Classification: C33, G20, G21, E44.