Profitability of Saudi Commercial Banks: A Comparative Evaluation between Domestic and Foreign Banks using CAMEL Parameters
Recent banking reforms in Saudi Arabia fostered the entry of foreign banks to increase competition and improve the financial stability of the Saudi banking sector. There is, however, no comprehensive econometric study which has analysed the profitability of domestic and foreign banks on a standalon...
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| Format: | Article |
| Language: | English |
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EconJournals
2017-04-01
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| Series: | International Journal of Economics and Financial Issues |
| Online Access: | http://mail.econjournals.com/index.php/ijefi/article/view/4165 |
| _version_ | 1797911772542271488 |
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| author | Abdulazeez Y.H. Saif-Alyousfi Asish Saha Rohani Md-Rus |
| author_facet | Abdulazeez Y.H. Saif-Alyousfi Asish Saha Rohani Md-Rus |
| author_sort | Abdulazeez Y.H. Saif-Alyousfi |
| collection | DOAJ |
| description |
Recent banking reforms in Saudi Arabia fostered the entry of foreign banks to increase competition and improve the financial stability of the Saudi banking sector. There is, however, no comprehensive econometric study which has analysed the profitability of domestic and foreign banks on a standalone and comparative basis. Present paper fills in this gap and assesses the profitability of Saudi banks using the parameters of the CAMEL framework over the period 2000-2014 using pooled OLS and fixed effect model. Our results indicate that domestic banks are more profitable than foreign banks. We also find that both foreign and domestic banks with higher capital are more profitable. Banks with a higher non-performing loan are less profitable: foreign banks carry more credit risk in their portfolio. In contrast to domestic banks, operating expenses to total income for foreign banks is significant but negatively related to profitability, indicating that cost management inefficiency adversely affect the profitability of this group. Our results also indicate that banks with larger size are less profitable. We also find that steep rise in lending activities lead to increase in the profitability of domestic banks but has adversely affected the profitability of foreign banks in the country. The findings of the study have many policy implications.
Keywords: Profitability, Foreign banks, Domestic banks, CAMELs model, Saudi Arabia
JEL Classifications: G20; G21, G01, G24, C23; L25, E40, O16
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| first_indexed | 2024-04-10T11:45:56Z |
| format | Article |
| id | doaj.art-287e669c0e9f45abbaafec44202b4c01 |
| institution | Directory Open Access Journal |
| issn | 2146-4138 |
| language | English |
| last_indexed | 2024-04-10T11:45:56Z |
| publishDate | 2017-04-01 |
| publisher | EconJournals |
| record_format | Article |
| series | International Journal of Economics and Financial Issues |
| spelling | doaj.art-287e669c0e9f45abbaafec44202b4c012023-02-15T16:17:21ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382017-04-0172Profitability of Saudi Commercial Banks: A Comparative Evaluation between Domestic and Foreign Banks using CAMEL ParametersAbdulazeez Y.H. Saif-Alyousfi0Asish Saha1Rohani Md-Rus2Ph.D. Student School of Economics, Finance and Banking Universiti Utara Malaysia (UUM) Sintok - 06010; Kedah, Malaysia Tel: +601123604319 e-mail: azizalyousfi@yahoo.comFlame School of Business Flame University Pune-412115 India Tel: +91-20-67906194 Mobile: +91-9158896499School of Economics, Finance and Banking Room No.: 184, Economics Building Universiti Utara Malaysia (UUM) Sintok - 06010; Kedah, Malaysia Tel: +60-194101666 Recent banking reforms in Saudi Arabia fostered the entry of foreign banks to increase competition and improve the financial stability of the Saudi banking sector. There is, however, no comprehensive econometric study which has analysed the profitability of domestic and foreign banks on a standalone and comparative basis. Present paper fills in this gap and assesses the profitability of Saudi banks using the parameters of the CAMEL framework over the period 2000-2014 using pooled OLS and fixed effect model. Our results indicate that domestic banks are more profitable than foreign banks. We also find that both foreign and domestic banks with higher capital are more profitable. Banks with a higher non-performing loan are less profitable: foreign banks carry more credit risk in their portfolio. In contrast to domestic banks, operating expenses to total income for foreign banks is significant but negatively related to profitability, indicating that cost management inefficiency adversely affect the profitability of this group. Our results also indicate that banks with larger size are less profitable. We also find that steep rise in lending activities lead to increase in the profitability of domestic banks but has adversely affected the profitability of foreign banks in the country. The findings of the study have many policy implications. Keywords: Profitability, Foreign banks, Domestic banks, CAMELs model, Saudi Arabia JEL Classifications: G20; G21, G01, G24, C23; L25, E40, O16 http://mail.econjournals.com/index.php/ijefi/article/view/4165 |
| spellingShingle | Abdulazeez Y.H. Saif-Alyousfi Asish Saha Rohani Md-Rus Profitability of Saudi Commercial Banks: A Comparative Evaluation between Domestic and Foreign Banks using CAMEL Parameters International Journal of Economics and Financial Issues |
| title | Profitability of Saudi Commercial Banks: A Comparative Evaluation between Domestic and Foreign Banks using CAMEL Parameters |
| title_full | Profitability of Saudi Commercial Banks: A Comparative Evaluation between Domestic and Foreign Banks using CAMEL Parameters |
| title_fullStr | Profitability of Saudi Commercial Banks: A Comparative Evaluation between Domestic and Foreign Banks using CAMEL Parameters |
| title_full_unstemmed | Profitability of Saudi Commercial Banks: A Comparative Evaluation between Domestic and Foreign Banks using CAMEL Parameters |
| title_short | Profitability of Saudi Commercial Banks: A Comparative Evaluation between Domestic and Foreign Banks using CAMEL Parameters |
| title_sort | profitability of saudi commercial banks a comparative evaluation between domestic and foreign banks using camel parameters |
| url | http://mail.econjournals.com/index.php/ijefi/article/view/4165 |
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