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Task 4
FINDINGS
Task 4
FINDINGS
• The bank specific factors (CAMLS) affect earnings of commercial
banks with atleast 95% confidence level (r square=72%).
• Management efficiency (Mqp_av) and capital adequacy (Cap_av)
were statistically significant at 1% (p=0.01) and 5% (p= 0.05) level.
• Operating expenses to total assets (measure of efficiency) has a
significant negative impact on both ROA and ROE.
• This is consistent with the results of previous studies on factors
determining bank performance (Reviera-Solis et al., 2013; Jiang et al.,
2003, Bagheri, 2007)..
Task 4
FINDINGS
• Kwast and Rose (1982) found that those banks experiencing high
profitability also experienced lower operating costs.
• Therefore, controlling operating expenditure remains the most
important task for bank management.
• PPE was found to have a significant positive impact (p<0.05) on both
ROA and ROE.
• In this respect, Bryan (2007) in his study on the top 30 of the largest
companies in the world, found their PPE rise by 137% and their
median market capitalization rose by more than 300% while the
return on invested capital (ROIC) grew only from 17% to 23%.
Task 4
FINDINGS
• He believed that the increase in market capitalization was because of
an increase in average profit brought on by more than 100% increase
in PPE.
• With respect to capital adequacy, our results on the impact of the
sub-variables shows that the capital adequacy to risk weighted
assets(CRAR) has a positive impact on the bank performance
although it is not significant (p>0.05).
• Berger (1995) in this context stated that, contrary to what one might
expect in situations of perfect capital markets with symmetric
information, there is a positive relationship between capital and ROE.
Task 4
FINDINGS
• Other studies have also found similar results (Charles and Kenneth,
2013; Naceur and Kandil, 2008; Oladejo and Oladipupo, 2011; Lily,
2013 and Olalekan and Adeyinka, 2013).
Task 4
CONCLUSION
• This study examines the relative importance of bank specific factors
on the earnings of the local banks in Dubai, using the CAMELS model
analysis.
• These bank specific are capital adequacy, asset quality, management
efficiency, liquidity and sensitivity to market risk while ROA and ROE
were used as proxies for bank earnings.
• Our most important findings are that management efficiency and
capital adequacy significantly affect the performance of local
commercial banks in Dubai.
Task 4
CONCLUSION
• The impact of risk weighted capital adequacy, debt to equity and coverage
ratios on the profitability (as measured by ROA and ROE) is positive whereas
the impact of total capital ratio is significantly negative.
•
The bank management can use the capital adequacy to further enhance
their earnings by holding adequate amount of capital which will guard them
against any future uncertainties or financial distress while at the same time
making them profitable.