Abstract
The banking sector fulfils a fundamental role within the economy of a country. In South
Africa, this sector contributes in excess of 20 percent toward GDP, and is responsible for more than 10
percent of overall employment in the country. This study empirically investigates the most significant
determinants of South African bank profitability by examining bank-specific internal and
macroeconomic external factors under a panel regression framework. The four largest commercial
banks in South Africa as well as South Africa’s largest alternative banking institution were examined
between 2006 and 2015. Based on the results obtained, this study concludes that both bank-specific
internal as well as macroeconomic external variables are statistically significant determinants of South
African bank profitability. The variables of asset quality, capital strength, operational efficiency,
economic activity (GDP), annual inflation and the real interest rate were found to be statistically
significant. Capital strength, economic activity (GDP), annual inflation and the real interest rate
respectively displayed positive relationships to bank profitability, whereas asset quality and operational
efficiency displayed inverse relationships to bank profitability.