Niranjan Shetty

Type of the article: Research Article

Abstract
This paper investigates the determinants of bank profitability in Oman. It covers two broad categories of traditional factors that determine bank profitability, namely bank-specific variables: capital adequacy, credit risk, liquidity risk, and operational efficiency; and macroeconomic variables: economic growth, inflation, industry concentration, credit growth, and interest rates. Due to the nature and small size of the Omani economy, the industry-specific factors are clubbed with macroeconomic factors. The findings show that the p-value (0.00) is well below the 5% significance level for both ROE and ROA proxies, leading to the acceptance of the null hypothesis of no co-integration. Moreover, Fisher’s chi-squared test statistics are 145.742 for ROE and 150.224 for ROA, strengthening the absence of a long-term relationship between both bank-specific and macroeconomic variables. Co-integration vectors with Fully Modified OLS show that CPI (Inflation) does not significantly influence ROE (p = 0.280), indicating that explanatory variables have no significant impact on ROE at 5% significance level. Similarly, in estimating ROA, neither CPI (p = 0.146) nor GDP (p = 0.435) reflects a significant effect, suggesting that these macroeconomic variables do not have a co-integrating impact on profitability metrics. The study indicates that bank profitability in Oman is sensitive to both internal and external factors. However, the degree to which each determinant affects a bank’s profitability in Oman varies from that observed in international studies. The findings have important implications for decision-makers in the banking sector when developing appropriate strategies, considering the sensitivity of each factor indicated in our study to bank profitability.

Acknowledgments
We express our gratitude to the management, staff, and students at the College of Banking and Financial Studies for their valuable support.