Determinants of Commercial Banks’ Performance in Malawi: A Triple Autoregressive Distributed Lag (ARDL) Approach

Abstract

There has been a monotonic increase in research investigating the performance of commercial banks across the globe. This is a recognition that the banking and financial sector has a significant contribution to the service sector and national output. This paper analyzed the determinants of commercial bank’s performance in the category of macroeconomic, bank-specific and financial structure factors in Malawi. The study employed an autoregressive distributed (ARDL) approach/bounds cointegration testing for a period between 1990 to 2020. The results show that inflation has a negative and statistically significant relationship with bank’s ROA in the long run. While cost-to-income ratio also depicts a negative and statistically significant relationship with all the indicators of bank performance (ROA, ROE and NIM) in the long run. On the other hand, bank concentration is insignificant on all the models. The paper suggests various policy implications to on internal and external determinants of commercial bank’s performance.

Keywords: ROA, ROE, NIM, ARDL, Inflation, Cost-to-income ratio, bank concentration

DOI: 10.7176/RJFA/12-17-03

Publication date:September 30^th 2021