Determinants and Effect of Commercial Bank Profitability in Zimbabwe (2009-2013).

Abstract

With the objective to establish determinants and effects of profitability in Zimbabwean commercial banks for the period 2009 to 2013 a Generalized Least Squares method was used on pooled panel data of 11 commercial banks over 5 years to solve for heteroskedasticity. Employing RoA as a proxy for profits, Net interest Income and Expenses are highly significant at the 1% level of significance with positive and negative coefficients respectively implying that operational efficiency and product diversification are vital for profitability. Inflation, Liquidity, Financial Structure and Asset Composition are weakly significant at the 10% level of significance while Deposit Composition was found to be statistically insignificant. Legislators have well vested interest in implementing policies aimed at stabilisation and efficiency in the banking sector. For one to formulate an effective policy that strikes a balance between the two there’s need to understand the determinants of bank profitability so as to adopt policies that promotes a sustainable and stable banking sector for economic growth.

Keywords: Profitability, Zimbabwean Banking Sector, Generalized Least Squares.