Abstract:
Until now, not much recent research has been done into bank’s profitability in Malawi except for one done over a period of 24 years in 2003 by Chirwa and Lipunga in 2014 which only looked at banks that were listed on Malawi Stock Exchange. Yet at global level, empirical evidence shows that various studies have been done particularly in developing countries. Special interest was therefore drawn to undertake a study on bank’s profitability in Malawi, realizing that banks are key players in the economy. Their profitability or lack of has significant bearing on other sectors of the economy. For example, profitable banks have capacity to lend money to other investors in other sectors and this, without doubt, can spur the economy. The study explored in detail the factors that affect probability in Malawian banks. Further, the study explored the extent to which bank’s profitability is affected by the identified factors through application of regression analysis. The study relied on desk research through critical review of secondary data i.e. published bank annual reports for eleven Malawian banks covering a period of six years from 2010 to 2015. Consistent with prior studies into the subject, factors affecting bank’s profitability in Malawi include size of the bank i.e. assets, cost to income ratio, loan loss ratio and size of customer deposits. The wider policy framework under which banks operate also plays a role e.g. interest rate, tax regime and inflation related pricing. Principally, this means both internal and external factors are responsible for bank profitability. The study’s concentration was on internal factors. Consistent with prior research findings, the study uncovered that banks with big assets are more profitable that small size banks. High cost to income ratio also accounts for low profitability. Banks that are able to control their costs make better profits compared to those with cost challenges. On the customer deposit ratio, results show that the higher customer deposits that the bank holds, the more the profits they make. Banks profitability is also affected negatively by loan loss ratios. The higher the loan loss ratio, the less profitable the bank is. In line with the findings, the study concludes and recommends that banks need to heed and augment the factors that determine profitability so that efforts are consolidated and steps taken to enhance profitability factors whilst stringent measures are put in place to contain profit constraining factors.
