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.

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