Determinants of Profitability of Listed Commercial Banks in Developing Countries: Evidence from Malawi

Abstract

The study of profitability is important in assessing the health of organisations. However, profitability of the banking sector is particularly crucial as the soundness of the sector is closely related to the soundness of the entire economy. The current study attempts to evaluate the determinants of profitability of listed commercial banks in developing countries specifically focusing on Malawi during the period 2009-2012 using internal-based and external (market)-based profitability measurements. The study employed correlation and multivariate regression analysis. Return on Assets (ROA) and Earnings Yield (EY) are used as proxies of internal and external profitability respectively. The results of the regression analysis suggest that bank size, liquidity and management efficiency have a statistically significant impact on ROA however capital adequacy has insignificant effect. On the other hand results suggest that earnings yield is significantly influenced by bank size, capital adequacy and management efficiency, whereas liquidity is found to have insignificant influence on Earnings yield.

Keywords: Commercial banks, Malawi, Return on Assets (ROA), Earnings Yield (EY)