Bank-Specific Determinants of Profitability: The case of Kuwait

Abstract

This paper investigates the impact of bank-specific determinants on bank’s profitability in the Kuwaiti banking sector for the period 1993-2005. In order to achieve this purpose, a pooled annual data for seven national commercial banks is used to estimate a five variables model by the seemingly unrelated regression technique. The results indicate that equity ratio, loan-assets ratio, operating expenses ratio, and total assets explain about 67% of the variation in return on assets (ROA). However, the results indicate that loan-assets ratio, and operating expenses ratio are statistically insignificant. Accordingly, the results stress the need for improving capital adequacy and reducing the ratio of non-interest assets as a way to improve profitability. The positive impact of the size variable indicates scale efficiency meaning that there is a potential for higher profits as the size of these banks increases.