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Islamic Rural Bank Profitability : Evidence from Indonesia
... Furthermore, according to Warninda (2014) inflation has an insignificant effect on Islamic Rural Bank profitability in the short run but negatively significant towards IRB in the long run. Fithria and Sholihin (2018) showed that Inflation has a positive significant effect on profitability. ...
... Fithria and Sholihin (2018) showed that Inflation has a positive significant effect on profitability. Furthermore, Warninda (2014) showed that Money Supply (M2) has a positive significant effect on Islamic Rural Bank profitability either in the short-run or in the long run. ...
... Then, the results showed that bank size has a positive and significant effect on the performance of Indonesian Islamic rural banks (Fithria & Sholihin, 2018). On the contrary, Warninda (2014) showed that Bank Size has an insignificant effect on Islamic Rural Bank profitability in the short run but has a negatively significant effect in the long run. ...
The main difference between Islamic banking and conventional is the concept of profit and loss sharing (PLS). Supposedly, banks have to use dominantly this concept. Nevertheless, products based on PLS are less of attention for the bankers to generate profit. Otherwise, the product based on the Murabahah contract is the first choice for the banker for profit-making. Therefore, this research generally aims to examine the performance of Islamic rural banking products as a source of generating revenue. Especially to prove that profit and loss sharing is the best way to generate profit. VECM analysis will apply to identify the contribution of Islamic rural banking products to generate income. In evaluating of financing performance of Islamic banks, the data was collected from the central banks’ reports from 2009 to 2019. The result showed that in the long-run and short-run the PLS financing product (Mudharabah and Musyarakah) has a positive and significant effect on generating revenue. The study also revealed that the impulse response also showed that PLS gives a positive response and is stable in the long run. Furthermore, based on variance decomposition PLS has a bigger contribution to revenue.
... Those studies have examined activities, efficiency and comparison between Islamic and conventional banks. However, research into BPRS is still rarely found in the literature (Trinugroho et al., 2018;Warninda, 2014;Nashihin and Harahap, 2014;Muhari and Hosen, 2015;Agustina et al., 2019 andJatmiko, 2017). Trinugroho et al. (2018) investigated BPRS margins, competition, and diversification; but did not investigate management ownership. ...
... Trinugroho et al. (2018) investigated BPRS margins, competition, and diversification; but did not investigate management ownership. Warninda (2014) examined the profitability determinants of BPRS using an error correction model (ECM). However, she did not examine the ownership effect and only used time-series data. ...
... This study also used four internal control variables that reflect the specific characteristics of Islamic MFIs, namely firm size, deposit ratio, capital ratio and financing ratio. Firm size (SIZE) is measured by the natural logarithm of total assets (Hartarska, 2005;Bukair and Rahman, 2015), deposit ratio (DEPO) is measured by the ratio of total deposits divided by total assets (Hanafi et al., 2013;Warninda, 2014), capital ratio (ETA) is measured by the ratio of total equity divided by total assets (Jatmiko, 2017), and financing ratio (FIN) is measured by the ratio of total financing to total assets. In addition, this study also used macroeconomic variables, commonly used as external control variables, namely the growth rate of the gross domestic product (GDP) and the inflation rate (INF) (Hartarska, 2005;Sufian and Noor, 2012;Zouari and Taktak, 2014). ...
Purpose
This study aims to analyse the relationship between management ownership and the performance of Islamic microfinance institutions (MFIs) using panel data from Indonesian Islamic rural banks (Bank Pembiayaan Rakyat Syariah [BPRS]).
Design/methodology/approach
This study uses unbalanced quarterly panel data from BPRS during the period from 2011 to 2016. Performance, as the dependent variable in this study, is analysed based on three sets of measures, namely, profitability, efficiency and the financing risk. Management ownership, as the independent variable in this study, is represented by ownership by the board of directors (BOD), the board of commissioners (BOC) and the sharia supervisory boards (SSB).
Findings
The results show that ownership by the BOD and BOC does not have a significant relationship with profitability and efficiency. However, the BOD ownership has a negative relationship with the financing risk and vice versa for the BOC ownership. Additionally, the study reveals that ownership by the SSB plays a positive and significant role in increasing the profitability and efficiency but does not have a significant impact on the financing risk.
Originality/value
This is one of the first studies to provide empirical results regarding the relationship between management (BOD, BOC and SSB) ownership and the performance of BPRS. The finding reveals that ownership by the SSB is very important to increase the profitability and efficiency of the BPRS.
Contribution to Impact
This study fills the gap in the literature about Islamic MFIs in Indonesia, especially the BPRS. This research also provides an insight into corporate governance practices and Islamic MFIs’ performance using BPRS data. The findings provide useful information for policy makers and regulators.
... There are a few empirical studies related to small Islamic banks. Warninda (2014), Trinugroho et al. (2017), and addressed profitability. Trinugroho et al. (2018) examined bank margin, and Widarjono, Anto and Fakhrunnas, (2020) investigated financing risk. ...
... A high Z-Score represents a lower probability of bankruptcy and vice versa. Return on asset (ROA) is a proxy of profitability (Masood and Ashraf, 2012;Warninda, 2014). The IRB's financial stability and profitability are affected by both bank characteristics as well as macroeconomic variables. ...
... This finding shows that macroeconomic stability promotes IRB profits. These findings are in line with the preceding researches (Choong et al., 2012;Warninda, 2014;Trad et al., 2017). The CBR's profitability is affected by the growth of financing (gfin), NPF, IPI, and exchange rates. ...
This study investigates whether Islamic rural banks perform better than conventional rural banks as their competitor in Indonesia. To measure Islamic rural banks' financial performance, we apply financial stability using Z-score and profitability using the return on assets. We use monthly time series data from January 2009 to December 2018. The dynamic regression of the Autoregressive Distributed Lag (ARDL) model is then employed. The results report that the Z-Score of Islamic rural banks is higher than the Z-Score of conventional rural banks. This finding shows that Islamic rural banks are less risky than conventional rural banks. However, the Islamic rural banks' financial stability is very vulnerable to changes in equity, output, and inflation than conventional rural banks. Although the Islamic rural banks' profit rate is lower compared to conventional rural banks, it is considered more stable. The profit of Islamic rural banks is affected by size, equity, domestic output, and inflation.
... Numerous empirical studies have also analyzed the performance of Islamic rural banks as regional banks. Warninda (2014) documented that equity financing (Mudharabah and Musyarakah) and non-equity financing (Murabahah) positively affect profitability but NPF negatively affects profitability. The macroeconomic variable that affects profit is the money supply. ...
... This finding reports that only Musyarakah financing can increase the profitability of Islamic banks. The role of Musyarakah financing in encouraging profit also occurs in Islamic rural banks (Warninda, 2014). Our finding is in line with the fact that entrepreneurs prefer to use Musyarakah contracts than Mudharabah because the former contracts pose the same responsibilities in running their business (Risfandy, 2018). ...
Islamic banks provide financing in the form of equity financing and non-equity financing. Equity financing is profit-loss sharing financing which is the main core of Islamic bank business consisting of Mudharabah and Musyarakah. This paper examines the extent to which equity financing affects the profitability of Islamic banks in Indonesia with the control variables consisting of bank-specific variables such as capital adequacy ratio, cost-income ratio, non-performing financing, and macroeconomic conditions such as domestic output, exchange rate. This study employs aggregate data of Islamic banks from January 2010 to December 2019. The estimation method is the Autoregressive distributed lag (ARDL) model. The results prove evidence of the long-run relationship between the dependent andindependent variables. The results show that total equity financing increases Islamic banks' profitability in Indonesia, but only Musyarakah financing significantly boosts profitability. Furthermore, the bank-specific variables affecting profits are capital, efficiency, and nonperforming financing. High capital adequacy ratio (CAR) reduces profit and inefficient Islamic banks and non-performing financing lower profit. Evidence also highlights that worse economic conditions through the economic downturn and sharp depreciation obviously lower the profitability of Islamic banks. These results imply that Islamic banks must capitalize on Musyarakah financing to support the performance of Islamic banks.
... Many empirical researches have examined the profitability of Indonesian Islamic banks such as Does market structure matter for Islamic rural banks' profitability? Agus Widarjono, M. B. Hendrie Anto | 395 | Warninda (2014), Sriyana (2015), Hosen & Rahmawati (2016), Setyawati et al. (2017), Trinugroho et al. (2017), Widarjono (2018), Aisyah & Hosen (2018), Sutrisno & Widarjono (2018), Al Arif & Awwaliyah (2019), Widarjono (2020a), Widarjono (2020b). The existing empirical studies of Indonesian Islamic banks employ panel data as well as time series data. ...
... The level of financing risk for Islamic rural banks is remarkably high, above maximum threshold of 5 percent, thus hampering the financial performance of Islamic rural banks (Widarjono et al., 2020). The results of this research link to the previous studies for Indonesian Islamic commercial banks (Sutrisno & Widarjono, 2018) and for Indonesian Islamic rural banks (Warninda, 2014). ...
This study investigates the impact of the market structure including bank-specific factor and macroeconomic conditions on profitability of Islamic rural banks in Yogyakarta and Central Java provinces. We employ the Structure Conduct Performance (SCP) and Relative Market Power (MRP) hypothesis using static and dynamic panel data regression over the periods 2013Q1- 2018Q4. Diagnostic tests obviously confirm that the dynamic panel regression is more appropriate in estimating profitability because of the dynamic behavior of profitability, instead of the static panel regression. Based on the Concentration Ratio (CR) and the Herfindahl-Hirschman Index (HHI), both provinces face imperfect competition market. Market share positively affect profitability but market concentration has no impact on profitability. The results clearly show that our study supports the RMP hypothesis but fail to confirm the SCP hypothesis. Some control variables such as the level of efficiency and financing rate also affect profitability. A high level of operating efficiency increases more profits and low non-performing financing produce more profits. Our findings suggest that improving operating cost eventually is the key in capitalizing the power of market share.
... According to financing data, the portion of NPLS is much higher, which is more than 80% on average, compared to PLS, which averages less than 20%. Accordingly, the amount of financing provided through NPLS contracts has a positive effect on profitability due to low risk and ease of implementation (Warninda 2014;Belkhaoui et al. 2020). By contrast, equity financing may result in a different impact on profitability. ...
Financing is the main source of Islamic bank income as a financial intermediary that will contribute to the bank’s profitability. There are two financing schemes, namely profit–loss-sharing financing and nonprofit–loss-sharing financing. The main purpose of this study is to analyze the impact of profit–loss-sharing financing on the Islamic bank’s profitability. We employ 31 Islamic commercial banks in Indonesia using quarterly data and spanning from 2016 Q1 to 2020 Q4. Dynamic panel regression using the two-step system GMM is applied. The results showed that profit–loss-sharing financing has a negative effect on profitability, suggesting that profit–loss financing discourages Islamic bank performance. Meanwhile, some control variables such as size and liquidity risk positively influence profitability and low efficiency, and financing quality negatively affects profitability. These findings have an important implication for Islamic banks. Islamic banks must conduct tight monitoring for PLS financing so that this ex-post scheme can encourage the performance of Islamic banks.
... Musharakah financing can increase profits and stability since this type of financing can be managed properly because both parties are responsible for the managed project (Risfandy, 2018). A study by Warninda (2014) on Islamic rural banks also shows that Musharakah financing can increase the profitability of Islamic banks. On the other hand, Mudarabah financing has a negative effect on stability using the AIC method. ...
The study analyzes the extent to which Profit-Loss Sharing (PLS) financings with some control variables influence the stability of Islamic banks. Because of different scheme financings between Musharakah and Mudarabah, we also split them. This study measures stability utilizing Z-score. We employ the Autoregressive distributed lag (ARDL) model using monthly aggregate data of Islamic banks, covering from 2010:M1 to 2019:M12. This study is among studies who are pioneer in analyzing the role of PLS financing on stability. The findings shows that the PLS financings strengthen Islamic banks' stability for which Musharakah financing enhances the stability but Mudarabah financing weakens stability. Evidence also underlines that bank capital adequacy ratio (CAR) support stability but non-performing financing (NPF) and inefficiency lower stability. Macroeconomic conditions persistently support stability for which economic upturn fortifies stability but sharp depreciation weakens stability. This study implies that, in addition to Murabahah, Islamic banks have to diversify their financing on Musharakah.
... The high impaired financing trims down the Islamic banks' ability to increase financing because of the previous high bad financing, reducing Islamic banks' profitability (Sutrisno & Widarjono, 2018). The finding is in accordance with Warninda (2014) and Widarjono, Mifrahi, and Perdana (2020) for Indonesian Islamic rural banks. ...
This paper investigates the extent to which sectoral financing concentration affects the Islamic banks' profitability in Indonesia. As additional control variables, we include bank-specific and macroeconomic conditions. This study utilizes the aggregated financial statements of Islamic banks in Indonesia from January 2010 through December 2019 and analyzed with the Autoregressive distributed lag (ARDL) model. The results confirm cointegration evidence, demonstrating the long-term relationship between the dependent and independent variables. The results clearly indicate that sectoral financing concentration increases the profitability of Islamic banks. Furthermore, excessive financing and high non-performing financing reduce the profitability of Islamic banks. As a financial sector, Islamic banks' performance is contingent on favorable economic and macroeconomic conditions, such as high economic growth and low inflation. These findings imply that Islamic banks must employ skilled workers who are experts in related economic sectors, which is one of the primary goals of Islamic bank financing.========================================================================================================== ABSTRAK – Konsentrasi Pembiayaan Sektoral dan Profitabilitas Bank Syariah di Indonesia. Tulisan ini mengkaji sejauh mana konsentrasi pembiayaan sektoral mempengaruhi profitabilitas bank syariah di Indonesia. Sebagai variabel kontrol tambahan, kami menyertakan kondisi spesifik bank dan variabel makroekonomi. Penelitian ini menggunakan agregat laporan keuangan bank syariah di Indonesia dari Januari 2010 sampai Desember 2019 dan dianalisis dengan model Autoregressive distributed lag (ARDL). Hasil kajian mengkonfirmasi bukti kointegrasi, yang menunjukkan hubungan jangka panjang antara variabel dependen dan independen. Hasil kajian memperjelas bahwa konsentrasi pembiayaan sektoral dapat meningkatkan profitabilitas bank syariah, sementara pembiayaan yang berlebihan dan pembiayaan bermasalah yang tinggi mengurangi profitabilitas bank syariah. Sebagai institusi yang bergerak di sektor keuangan, kinerja bank syariah sangat bergantung pada kondusifitas sistem ekonomi dan kondisi makroekonomi, seperti pertumbuhan ekonomi yang tinggi dan inflasi yang rendah. Temuan ini menyiratkan bahwa bank syariah harus mempekerjakan pekerja terampil yang ahli di sektor ekonomi terkait, yang merupakan salah satu tujuan utama pembiayaan bank syariah.
... On the other hand, Warninda (2014) found that bank size has no significant effect on Islamic rural bank profitability in the short run but has significant negative effect in the long run. This result means that bank size has a great negative influence on Islamic rural bank profitability in the long run. ...
... On the other hand, Warninda (2014) found that bank size has no significant effect on Islamic rural bank profitability in the short run but has significant negative effect in the long run. This result means that bank size has a great negative influence on Islamic rural bank profitability in the long run. ...
This paper aims to analyze the effect of bank size on performance of Indonesian Islamic rural banks. To achieve this objective, this study analyzes quarterly panel data of financial report from Indonesian Islamic rural banks from Q12011 to Q42016 with total 3,222 observations. Performance, as the dependent variable in this study, is measured by return on assets. Bank size, as the independent variable in this study, is measured by natural logarithm of total assets. In addition, this study also uses financing ratio, capital ratio, nonperforming financing, GDP growth rate and inflation rate as control variables. The result shows that the size has a positive and significant effect on performance in small banks. By examining the effect of bank size on performance of Indonesian Islamic rural banks, this study is expected to fill the gap in literature of Islamic financial institutions in Indonesia, especially the Islamic rural banks.
This research tested the influence of Islamic Rural Bank promotion cost and training cost towards Islamic Rural Bank profitability in Indonesia. Research variable used promotion cost and training cost which were allocated by Islamic Rural Bank, while profitability used proxy Return on Asset (ROA). This research is explanatory research by using quantitative approach. Sampling technique conducted was quota sampling and it found 4 Islalmic Rural Bank in Indonesia period 2013-2017. Finding indicated that there was no influence promotion cost and training cost towards profitability of Islamic Rural Bank in Indonesia. Regression analysis conducted showed that Islamic Rural Bank could optimize education cost and training cost based on each division of Islamic Rural Bank and maximize promotion cost to introduce product and service in appropriate segment of long term so that each Islamic Rural Bank in Indonesia can present their company's performance to the maximum on the BPRudent Platform
The Islamic banking industry in Indonesia had experienced rapid growth since the government passed the Islamic banking law in 2008. Although growing fast but the market share of Islamic banking was still low. To increase the market share of Islamic banking, it was necessary to encourage Islamic banking performance. One of the performances of Islamic banking investigated in this study was profitability. We examined the profitability of Islamic banking using both internal and external factors. The method used to estimate the profitability of Islamic banking was the Autoregressive Distributed Lag Model (ARDL) method with monthly data. The estimation results showed that both internal and external factors affect the profit of Islamic banking. Asset, FDR, efficiency, and NPL affect profitability. An important variable affecting profitability were the bad financing (NPF). While the external factor influencing the profit of Islamic banking was the exchange rate and inflation. The implication of this result was that Islamic banking must be able to manage well the bad financing. Since NPF also depends on macroeconomic conditions, the government must be able to manage macroeconomic performance well such as stabilizing the exchange rate.
Microbanking is generally defined as a broad set of financial services to meet the needs of the poor and small enterprises. However, mirobanking that have been well-designed might not have a positive impact on the poorest unless it particularly obtains to reach them through proper business model. On the other hand, Indonesia lists as the largest Moslem community in the world. Hence, microbanking that are ruled under sharia regulation namely Islamic microbanking hopefully enable to support the development program particularly to the poor and SMEs in Indonesia. Therefore, the study of practices Islamic microbanking business model should be conducted in order to design the strategy of development, particularly on financial inclusion program. This study used qualitative analysis through a process of discussion, focus group discussion (FGD), in-depth interviews and literature review in order to gain information from primary and secondary sources as well as a comparative study of business models of Islamic microfinance in Indonesia.
ABSTRACT In this study, a balanced panel data set of Jordanian banks was used for the purpose of investigating the nature of the relationship between the profitability of banks and the characteristics of internal and external factors. For this purpose 100 observation of 10 banks over the period 2001-2010 were comprised. Two measures of bank’s profitability have been utilized: the rate of return on assets (ROA) and the rate of return on equity (ROE). Results showed that the Jordanian bank’s characteristics explain a significant part of the variation in bank profitability. High Jordanian bank profitability tends to be associated with well-capitalized banks, high lending activities, low credit risk, and the efficiency of cost management. Results also showed that the estimated effect of size did not support the significant scale economies for Jordanian banks. Finally, the estimation results indicated that individual effects on the profitability are present; this is concluded due to the fact that some of the differential slope coefficients are statistically significant
This study examines how bank-specific characteristics and the overall macroeconomic environment affect the profitability of Islamic Banks in the GCC. Utilizing a large panel data of 44 Islamic Banks over the period 1995-2009,the results indicate that higher capital, better asset quality, and larger size lead to higher profitability, while higher cost-to-income ratio leads to lower profitability. Consistent with previous findings on conventional banks, we find that favorable macroeconomic conditions have a positive impact on the profitability of Islamic Banks.
The first objective of this study was to determine and evaluate the effects of bank-specific factors; Capital adequacy, Asset quality, liquidity, operational cost efficiency and income diversification on the profitability of commercial banks in Kenya. The second objective was to determine and evaluate the effects of market structure factors; foreign ownership and market concentration, on the profitability of commercial banks in Kenya. This study adopted an explanatory approach by using panel data research design to fulfill the above objectives. Annual financial statements of 38 Kenyan commercial banks from 2002 to 2008 were obtained from the CBK and Banking Survey 2009. The data was analyzed using multiple linear regressions method. The analysis showed that all the bank specific factors had a statistically significant impact on profitability, while none of the market factors had a significant impact. Based on the findings the study recommends policies that would encourage revenue diversification, reduce operational costs, minimize credit risk and encourage banks to minimize their liquidity holdings. Further research on factors influencing the liquidity of commercials banks in the country could add value to the profitability of banks and academic literature.
This study investigates the effect of both institutional factors and the macro economy on the financial performance of MFIs. Drawing upon the Microfinance Information Exchange data and cross-country data on macro economy, finance and institutions, we use three stage least squares and Hausman-Taylor to take account of endogeneity. We find that institutional factors affect MFIs’ financial performance, in particular, profitability, operating expense, and portfolio quality. Also, GDP and share of domestic credit to GDP have positive impacts on MFIs’ financial performance. Hence policies to raise country-level institutional qualities are required for making the activities of MFIs sustainable.
The aim of this study is to examine the bank-specific and macroeconomic determinants of the banks profitability in Turkey over the time period from 2002 to 2010. The bank profitability is measured by return on assets (ROA) and return on equity (ROE) as a function of bank-specific and macroeconomic determinants. Using a balanced panel data set, the results show that asset size and non-interest income have a positive and significant effect on bank profitability. However, size of credit portfolio and loans under follow-up have a negative and significant impact on bank profitability. With regard to macroeconomic variables, only the real interest rate affects the performance of banks positively. These results suggest that banks can improve their profitability through increasing bank size and non-interest income, decreasing credit/asset ratio. In addition, higher real interest rate can lead to higher bank profitability.
Financial sector plays a pivotal role in the economic development. It is generally agreed that a strong and healthy banking system is a prerequisite for sustainable economic growth. Banks in Pakistan havebeen undergoing major challenges in the dynamic environment over the past few years. In order to resist negative shocks and maintain financial stability, it is important to identify the determinants thatmostly influence the overall performance of banks in Pakistan. This study aims to give the analysis of the determinants of top 10 banks’ profitability in Pakistan over the period 2004-2008. The focus is on the internal factors only. This paper uses the pooled Ordinary Least Square (POLS) method to investigate the impact of assets, loans, equity, and deposits on one of the major profitability indicator return on asset (ROA). The empirical results have found strong evidence that these variables have a strong influence on the profitability. However, the results show that higher total assets may not necessarily lead to higher profits due to diseconomies of scales. Also, higher loans contribute towardsprofitability but their impact is not significant. Equity and Deposits have significant impact on profitability.
This study investigates some influential factors (foreign ownership, banks-specific variables, and macroeconomic factors) on Islamic and conventional banks in Gulf Cooperation Council (GCC) countries, during the period 2002-2009, using a cross-sectional time-series (panel data). Two samples are used in this study. The first sample contains 38 conventional banks. The second sample contains 13 Islamic banks. The results show that bank's equity is important in explaining and increasing conventional banks profitability only. The cost-to-income had a negative and significant impact on Islamic and conventional banks performance. Additionally, the estimated effect of size provides evidence of economies of scale in Islamic banking using the ROE, while it is not significant for conventional banks. Foreign ownership, however, does not improve Islamic and conventional banks performance. Furthermore, bank's age and banking development have no effect on bank performance. Finally, GDP is positively correlated to bank's profitability, while inflation is negatively correlated to bank's profitability.
This paper examined the cost structures of 233 MFIs in Bangladesh with a view to understand whether the country’s MFI’s will be able to achieve sustainability given the newly introduced interest cap. We measured sustainability by Return on Investment (ROA) and Interest Rate Spread. Literature suggests that factors such as administrative and delivery costs, financing costs, sources of funds, average loan size, the size of the firm and proportion of women borrowers may influence the attainment of financial sustainability. The results suggest that factors such as the level of administrative costs, financing costs, sources of lending funds, nature of borrower and size of the loans were significantly related to financial sustainability. We conclude that MFIs that have lower proportions of Administrative costs and those that rely on client’s savings as the main source of lending funds are more likely to survive the newly introduced interest cap.
In this study we attempt at investigating the impact of how the bank-specific factors of profitability affects the performance of Islamic banks. This study uses sample that is composed of Islamic banks of Pakistan from period 2006 to 2009. It is evident from both statistical multivariate regression models that the relationship of gearing ratio and capital adequacy ratio found to have a positive relation and are statistically significant at the 5% significance level, whereas the asset management is statistically significant in model I and insignificant in model II with positive relation in both models. Size of the bank reported negative and insignificant relation in both models, which can be explained with the fact that most of the Islamic banks are facing losses in recent years. Moreover capital adequacy found to have significant relation in both models, as prudential regulations tighten by the State bank of Pakistan. This research offers researchers and practitioners both with insights to enhance the financial and economic literature as regards the profitability of Islamic banks.
The Ukrainian banking system exhibits low profitability compared to other transitional countries in the region. This study examines the determinants of bank profitability in Ukraine. It relates bank specific, industry specific and macroeconomic indicators to the overall profitability of Ukrainian banks. The study uses a panel of individual banks’ financial statements from 2005 to 2009. According to the empirical results, Ukrainian banks suffer from low quality of loans and do not manage to extract considerable profits from the growing volume of deposits. Despite low profits from the core banking activities Ukrainian banks manage benefit from exchange rate depreciation. This study finds evidence for the difference in profitability patterns of banks with foreign capital versus exclusively domestically owned banks. The results also indicate that there is room for consolidation of Ukrainian banks in order to benefit from economies of scale.
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