Abstract
The closure of African Bank Investments Limited (ABIL) in 2014 and also a myriad of challenges facing the commercial banks and other financial institutions led to this research. The major aim was to address the badgering question: What are the drivers/determinants of financial performance of commercial banks and other financial institutions? The main objective of the research is to find these determinants of financial performance of commercial banks and then compare them with other factors found in other financial institutions which are non-commercial banks (i.e. financial institutions which do not have a commercial banking licence, but are still in the same industry).
The literature was drawn from South African studies on the financial performance of financial institutions. They included other sources in Africa and also from the rest of the world. The literature helps in building up the appropriate methodology to be used to answer the basic hypotheses questions: Do bank-specific factors determine the financial performance of financial institutions, is it the macroeconomic factors which are the major determinants, or is it both? These hypotheses were broken down into sub-hypotheses (which are anchored on the explanatory variables). The explanatory variables used in the study are: bank-specific factors (i.e. bank size, solvency, capital adequacy, liquidity asset quality, debt management, management efficiency) and macroeconomic factors (economic growth, inflation and interest rates). The dependent variables for the research are: return on equity, return on assets, and net interest margin. The proposed methodology was drawn from three distinct models using the dependent variable – ROE Model, ROA Model and NIM Model. The data range is biannual from 2007:1 to 2017:1. The econometric model employed was the panel regression model, pooling together three commercial banks and three other financial institutions. The panel regression models, i.e. fixed effects and random effects models, were implemented to analyse the relationship between dependent and independent variables. However, the Hausman test on both models was used to determine which of the two regression analysis was more appropriate. In all instances, the fixed effects model was chosen. There were two scenarios which the research employed in order to fully test the hypotheses and also achieve its goal of comparative analysis. Scenario 1 (Combined scenario) was pooling all the financial institutions together in a six cross sectional panel regression analysis. Scenario 2 (Comparative scenario) was pooling three commercial banks and three other financial intuitions separately. The results showed that the financial performance was diverse for both commercial banks and other financial institutions...
M.Com. (Finance)