Table 7 Impact of monetary policy on...

Table 7

Impact of monetary policy on bank profitability

Variable	ROA		ROE
	PLS	GMM	PLS	GMM
Credit-deposit ratio (CDR)	−0.001	−0.001	−0.01	−0.01
Credit-deposit ratio (CDR)	(0.00)	(0.00)	(0.01)	(0.01)
Ratio of deposits to total liabilities (RD)	−0.01	−0.01^*	−0.03	−0.03
Ratio of deposits to total liabilities (RD)	(0.00)	(0.00)	(0.04)	(0.05)
Ratio of priority sector advances to total advances (PSR)	0.001	0.001	0.02	0.02
Ratio of priority sector advances to total advances (PSR)	(0.00)	(0.00)	(0.04)	(0.04)
Capital adequacy ratio (CAR)	0.01^***	0.01^**	−0.06^**	−0.06^*
Capital adequacy ratio (CAR)	(0.00)	(0.00)	(0.02)	(0.03)
Ratio of non-interest income to total assets (NITA)	0.12^**	0.12^***	−1.01^**	−1.01^*
Ratio of non-interest income to total assets (NITA)	(0.05)	(0.03)	(0.47)	(0.62)
Ratio of intermediation cost to total assets (OICTA)	−0.13^***	−0.13^***	−0.06	−0.06
Ratio of intermediation cost to total assets (OICTA)	(0.04)	(0.03)	(0.62)	(0.62)
Ratio of operating profits to total assets (OPPTA)	0.44^***	0.44^***	2.29^***	2.29^***
Ratio of operating profits to total assets (OPPTA)	(0.03)	(0.02)	(0.39)	(0.47)
Gross domestic product growth (GDPGR)	−0.01^*	−0.01	−0.11^***	−0.11
Gross domestic product growth (GDPGR)	(0.00)	(0.01)	(0.02)	(0.13)
Inflation (INFL)	0.02^***	0.02^***	0.39^***	0.39^***
Inflation (INFL)	(0.01)	(0.001)	(0.04)	(0.12)
Cash reserve ratio (CRR)	0.04^***	0.04^***	1.40^***	1.40^***
Cash reserve ratio (CRR)	(0.01)	(0.01)	(0.06)	(0.31)
Statutory reserve ratio (SLR)	0.02^**	0.02	0.53^***	0.53^***
Statutory reserve ratio (SLR)	(0.01)	(0.01)	(0.05)	(0.17)
Repo rate (RR)	0.02^**	0.02^**	−0.15^***	−0.15
Repo rate (RR)	(0.01)	(0.01)	(0.02)	(0.15)
Bank rate (BR)	0.001	0.001	0.24^***	0.24^*
Bank rate (BR)	(0.01)	(0.01)	(0.02)	(0.13)
Treasury bill rate (TBR)	0.01	0.01	0.07	0.07
Treasury bill rate (TBR)	(0.01)	(0.01)	(0.08)	(0.23)
Intercept	0.07	0.07	2.97	2.97
Intercept	(0.41)	(0.35)	(4.80)	(5.83)
R-squared	0.86	0.86	0.56	0.56
Adj R-squared	0.84	0.84	0.51	0.51
D-W stat	1.31	1.31	1.10	1.10
VIF range	1.10–4.92	1.10–4.92	1.47–5.30	1.47–5.30
Fixed effects	Yes	Yes	Yes	Yes
Cross sections	65	65	65	65
Observations	715	715	715	715

Variable	ROA		ROE
	PLS	GMM	PLS	GMM
Credit-deposit ratio (CDR)	−0.001	−0.001	−0.01	−0.01
Credit-deposit ratio (CDR)	(0.00)	(0.00)	(0.01)	(0.01)
Ratio of deposits to total liabilities (RD)	−0.01	−0.01^*	−0.03	−0.03
Ratio of deposits to total liabilities (RD)	(0.00)	(0.00)	(0.04)	(0.05)
Ratio of priority sector advances to total advances (PSR)	0.001	0.001	0.02	0.02
Ratio of priority sector advances to total advances (PSR)	(0.00)	(0.00)	(0.04)	(0.04)
Capital adequacy ratio (CAR)	0.01^***	0.01^**	−0.06^**	−0.06^*
Capital adequacy ratio (CAR)	(0.00)	(0.00)	(0.02)	(0.03)
Ratio of non-interest income to total assets (NITA)	0.12^**	0.12^***	−1.01^**	−1.01^*
Ratio of non-interest income to total assets (NITA)	(0.05)	(0.03)	(0.47)	(0.62)
Ratio of intermediation cost to total assets (OICTA)	−0.13^***	−0.13^***	−0.06	−0.06
Ratio of intermediation cost to total assets (OICTA)	(0.04)	(0.03)	(0.62)	(0.62)
Ratio of operating profits to total assets (OPPTA)	0.44^***	0.44^***	2.29^***	2.29^***
Ratio of operating profits to total assets (OPPTA)	(0.03)	(0.02)	(0.39)	(0.47)
Gross domestic product growth (GDPGR)	−0.01^*	−0.01	−0.11^***	−0.11
Gross domestic product growth (GDPGR)	(0.00)	(0.01)	(0.02)	(0.13)
Inflation (INFL)	0.02^***	0.02^***	0.39^***	0.39^***
Inflation (INFL)	(0.01)	(0.001)	(0.04)	(0.12)
Cash reserve ratio (CRR)	0.04^***	0.04^***	1.40^***	1.40^***
Cash reserve ratio (CRR)	(0.01)	(0.01)	(0.06)	(0.31)
Statutory reserve ratio (SLR)	0.02^**	0.02	0.53^***	0.53^***
Statutory reserve ratio (SLR)	(0.01)	(0.01)	(0.05)	(0.17)
Repo rate (RR)	0.02^**	0.02^**	−0.15^***	−0.15
Repo rate (RR)	(0.01)	(0.01)	(0.02)	(0.15)
Bank rate (BR)	0.001	0.001	0.24^***	0.24^*
Bank rate (BR)	(0.01)	(0.01)	(0.02)	(0.13)
Treasury bill rate (TBR)	0.01	0.01	0.07	0.07
Treasury bill rate (TBR)	(0.01)	(0.01)	(0.08)	(0.23)
Intercept	0.07	0.07	2.97	2.97
Intercept	(0.41)	(0.35)	(4.80)	(5.83)
R-squared	0.86	0.86	0.56	0.56
Adj R-squared	0.84	0.84	0.51	0.51
D-W stat	1.31	1.31	1.10	1.10
VIF range	1.10–4.92	1.10–4.92	1.47–5.30	1.47–5.30
Fixed effects	Yes	Yes	Yes	Yes
Cross sections	65	65	65	65
Observations	715	715	715	715

Note(s): We report the results of the Panel Regression (linear) models of the baseline specification using the profitability measures (ROA and ROE) as the dependent variables. We present the results of the Panel Least Squares (PLS) with fixed effects (cross-section weights (PCSE) standard errors and covariance) and Generalized Methods of Moments (GMM) with the coefficient values marked with significance levels in the first row, followed by the standard errors (in parenthesis) in the second row. Asterisks ^***, ^** and ^* indicate significance levels at 1, 5 and 10%, respectively

Source(s): Authors’ own calculations

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