Evaluating Profitability and Efficiency of the Banks in Palestine

52 Pages·2015·0.8 MB·English

Evaluating Profitability and Efficiency of the Banks
in Palestine

Basel Zimmo

Submitted to the
Institute of Graduate Studies and Research
in partial fulfillment of the requirements for the Degree of

Master of Science
in
Banking and Finance

Eastern Mediterranean University
September, 2015
Gazimağusa, North Cyprus
Approval of the Institute of Graduate Studies and Research

Prof. Dr. Serhan Çiftçioğlu
Acting Director

I certify that this thesis satisfies the requirements as a thesis for the degree of Master of
Science in Banking and Finance.

Assoc. Prof. Dr. Nesrin Özataç
Chair, Department of Banking and Finance

We certify that we have read this thesis and that in our opinion, it is fully adequate in
scope and quality as a thesis for the degree of Master of Science in Banking
and Finance.

Assoc. Prof. Dr. Nesrin Özataç
Supervisor

Examining Committee
1. Prof. Dr. Eralp Bektaş
2. Assoc. Prof. Dr. Nesrin Özataç
3. Asst. Prof. Dr. Korhan Gökmenoğlu
ABSTRACT
Nowadays, the role of banks in economics is undeniable. All the financial activities
are depending on them because they help to develop the economy quickly, so the
profitability measurements of the banking system should be investigated.
The goal of this study is to find the profitability measurements for 7 commercial
Palestinian banks and the researcher will do that on an analysis of bank for the period
2007-2013. The Palestinian banks profitability will be done by evaluating two main
parts of ratios; the first one is the bank specific ratios which are capital adequacy
ratio, liquidity ratio, management efficiency ratio, and the last one is the asset quality
ratio. In addition, the second part is macroeconomic determinants (inflation and
interest rate).
In this research, panel data is used to evaluate the relationship between the variables.
The study followed the previous studies such as the case of Turkey (Alper and Anbar,
2011) that investigated the profitability to measure the bank-specific performance for
10 commercial banks for the period of 2002-2010 and they came out that there is a
positive relationship between the interest rate and profitability and this result agrees
with the statistical analysis for of this study’s case.
The study concluded that the macroeconomic factors have more impact to the
profitability of the banks in Palestine when compared to the bank specific
determinants that exist because of the special structure of each bank, so for that the
researcher concluded the study by suggesting some solutions to the problems faced in
iii
this study.
Keywords: Palestine, panel data, bank profitability, macroeconomics factor, bank
specific determinants.

iv
ÖZ
G n m zde ankalar n ekonomideki rol inkar edilemez.Onlar finansal faaliyetlerin
kal idir ve ekonomik kalk nma h z n art rmak için yard mc olurlar. öylece
ankac l k sisteminin karl l ğ elirleyicileri değerlendirilmelidir. u tezin amac 7
ticari Filistin ankalar n n karl l k elirleyicilerini ulmak için 2007-2013 dönemi için
ir anka analizi yapmakt r. Filistin ankalar karl l k makroekonomik elirleyicileri
olarak sermaye oran aktif kalitesi oran yönetim verimliliği oran anka-özel ve
enflasyon ve faiz oran gi i likidite oran n uygulayarak taraf ndan incelenir.
u araşt rmada panel değerlendirilme tarihi ilişkisi kullan lm şt r.Çal şma sonucu
değerlerinin makroekonomik elirleyicileri taraf ndan elirlendigi ve karl l k oran n
filistin ankalar nda farkl oldugu anlaş ld ç nk her ankan n özel ir kar oran
elirleyicisi vard r ve Filistin ankalar n n makroekonomik etkilerinden farkl oldugu
anlaş l yor. iz u çal şmada karş laş lan sorunlara az çöz mler önerdik.
Anahtar Kelimeler: Filistin panel tarihi anka karl l ğ makroekonomi faktör
banka spesifik belirleyicileri.

v
Dedicated To My Family

vi
ACKNOWLEDGMENT

First of all, I would like to thank God for his splendid support to accomplish this
thesis. I would also like to appreciate the effort of my supervisor Assoc. Prof. Dr.
Nesrin Özataç for her outstanding contribution and guidance of this thesis. Without
her invaluable supervision, all my efforts could have been shortsighted.
Dr. Özataç provided me with all her time whenever I needed not only to finish up the
thesis work but also achieve with a strong background in the field chosen, without her
I would not have reached that far.
Second, I extend my heartfelt to my parents and my lovely brother and sister for
believing in me, and supported me financially and morally. I would like to dedicate
this study to them as an indication of their significance in this study as well as in my
life.
Finally, special thanks go to my dear friends, Amjad Taha and Wesam Hamed for
their emotional help and support throughout my research preparation. Also I would
like to thank my dear friends, Mohamad Nashashibi, Abdulrahman Zaben, and Yana
Oreshkevich and their families for their big support during the writing of this thesis.

vii
TABLE OF CONTENTS

ABSTRACT ................................................................................................................. iii
ÖZ .................................................................................................................................. v
ACKNOWLEDGMENT.............................................................................................. vii
LIST OF TABLES ......................................................................................................... x
LIST OF FIGURES ...................................................................................................... xi
LIST OF ABBREVIATIONS ...................................................................................... xii
1 INTRODUCTION ...................................................................................................... 1
1.2 Goal of the Study ................................................................................................. 1
1.3 Research Methodology ........................................................................................ 2
1.4 Framework of the Study....................................................................................... 2
2 OVERVIEW OF PALESTINE BANKING SECTOR ............................................... 3
2.1 Banking Sector Size ............................................................................................. 3
2.2 GDP of Palestine .................................................................................................. 6
2.3 The Role of PMA in Palestine Banking Sector ................................................... 7
2.4 The Role of the anking Sector in Palestine’s Economy .................................... 8
3 LITERATURE REVIEW ......................................................................................... 10
4 DATA AND METHODOLOGY .............................................................................. 16
4.1 Data .................................................................................................................... 16
4.2 The Variables ..................................................................................................... 16
4.3 The Methodology ............................................................................................... 20
viii
5 EMPIRICAL RESULTS AND DISSCUSSIONS .................................................... 21
5.1 Unit Root Test .................................................................................................... 21
5.2 The Model of Simple Regression ...................................................................... 22
5.3 Autocorrelation .................................................................................................. 25
5.4 Heteroskedasticity .............................................................................................. 26
5.5 Correlation Analysis .......................................................................................... 27
6 CONCLUSION AND RECOMMENDATIONS ..................................................... 30
REFERENCES ............................................................................................................ 32
APPENDICES ............................................................................................................. 35
Appendix 1: Panel Unit Root Tests for Palestinian Banks ...................................... 36
Appendix 2: Regression Result for ROA................................................................. 37
Appendix 3: Regression Result for ROE ................................................................. 38
Appendix 4: Q-Test.................................................................................................. 39
Appendix 5: Heteroskedasticity Test ....................................................................... 40

ix
LIST OF TABLES
Ta le 2.1: Num er of anks in Palestine………………….…………………………..4
Table 1.2: Deposits and loans for Palestine anking sector…………..……..….…..…5
Ta le 4.1: Dependent Varia les of the regression model……………….….……..…17
Ta le 4.2: Independent Varia les of the regression model……………..……..…..…18
Ta le 5.1: Panel Unit Root Test for Palestinian anks……………………………....21
Ta le 5.2: Regression Analysis Results for ROA……………………………………22
Ta le 5.3: Regression Analysis Results for ROE…………………………………….23
Table 5.4: AC, PAC and Q-stat for 10 lags…………………………………………..26
Ta le 5.5: P Test……………………………………………………………………26
Table 5.6: Correlation analysis of Varia les…………………………………………27

x