Profitability Factor of Banks

Importance Of Bank

Banks play an important role in the operations of economy of a country and act like a financial intermediary. The job of giving funds to the financial system makes their role a significant goal of any economy. That’s why, a brief look in to the determinants that influence the profitability of banks is essential and important to the health of the economy. In the year 1892, the first Nigerian bank has been established named the corporation of African bank. Up till the year 1952, the banking system of Nigeria was totally unregulated. This resulted in the complete failure in the sector of bank while in that era. The research about the profits is essential not merely because of the knowledge it gives about the economic health of any year provided but also that the profits are the main factors of growth. The survival, growth and existence of any organizations of business depend on the earnings which a company is capable to earn. It is a fact that when the factor of determinant increases, the shareholders value may also be increase to a noticeable extent.


The word profitability explains as the capability of organizational business in order to maintain their profits year by year.   The factors of profitability are already determined even though the explanation of profitability diverges in the studies. Ignoring the measure of profitability, many of the studies of bank have observed that the ratio of capital, loss of loan’s provisions and the control of expense are significant drivers of increased profitability. In the research provided, the factors that are going to be considered are divided between the two categories that is internal (endogenous) and external (exogenous) factors of profitability.

The endogenous drivers of the profitability of bank defined as the factors that are affected by decisions of bank management. Such effects of management will affect the results of operations of banks. Even though management of quality results to the best performance of bank, it is complex to analyze quality of management directly. Actually, it is utterly supposed that a quality like that will be observed in the performance of operations. It is not so unusual to study a performance of bank in terms of the financial variables present in financial statements for example income statement and balance sheet. Exogenous determinants of profitability of banks are those factors that are not in the control of management of bank. These factors show the events externally influenced the bank. These key components of the exogenous factors are macroeconomic determinants and structure of financial factors. It seems that old observed research has recommended a probable connection among profitability of bank and a variety of exogenous and endogenous determinants for example provision of loan loss, bank assets, and complete inflation and deposit except of remove from ultimate as many authors have researched on the exclusion and inclusion of various variables in their research.