Determinants of Commercial Bank Profitability in Sub-Saharan Africa

The central theme of this study was to investigate the determinants of commercial bank profitability in Sub-Saharan Africa. The analysis used an unbalanced panel of 216 commercial banks drawn from 42 countries in SSA for the period 1999 to 2006. Using the cost efficiency model, bank profitability was estimated using panel random effects method in static framework. The explanatory variables are growth in bank assets, growth in bank deposits, capital adequacy, operational efficiency (inefficiency), and liquidity ratio as well as the macroeconomic variables of growth in GDP and inflation. The findings clearly show that both bank-specific as well as macroeconomic factors explain the variation in commercial bank profitability over the study period. These findings demonstrate the importance of both bank level as well as macroeconomic factors in explaining commercial bank profitability in Sub-Saharan Africa. The policy implications drawn from this paper are that if banks are to attain profitability improvements, both bank level as well as macroeconomic factors are important.