Which profitability Measures Explain Better the Bank’s Financial Soundness?

Melita Charitou^1,

¹University of Nicosia, Cyprus

Cite this paper:
Melita Charitou. Which profitability Measures Explain Better the Bank’s Financial Soundness?. Journal of Finance and Economics. 2019; 7(2):62-67. doi: 10.12691/jfe-7-2-3

Abstract

The aim of this study is to examine the profitability measures that affect the bank’s financial soundness, as measured by capital adequacy. Using a dataset of 2445 bank-year observations, results show that three profitability measures increase the variability of the capital adequacy ratios by 14.40%. Specifically, results show that return on assets, net interest margin and losses affect substantially bank’s financial health. The results of this study are expected to aid bank executives, bank regulators and other stakeholders in evaluating better the bank’s financial soundness.

Keywords:
profitability financial institutions capital adequacy ratios Basel Accord

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