Determinants of bank profitability before and after the global financial crisis

Abstract

This paper empirically analyses the determinants (Bank-specific, industry-specific, and macroeconomics) of bank profitability in Kenya over the period 2001 to 2015. We compared the pre-crisis and post-crisis period by splitting the period into two samples: pre-crisis 2001-2007 and post-crisis 2010-2015. We use GMM technique to account for persistence in bank profits. We find evidence that bank-specific factors were key determinants of profitability during pre-crisis period. However, after the crisis both bank-specific and market factors were key determinants of banks profitability. The cost-income ratio is the most important factor that affects profitability. We find weak evidence to support the structure-conduct-performance (SCP) hypothesis.