EVALUATING BANKS FINANCIAL PERFORMANCE USING FINANCIAL RATIOS: A CASE STUDY OF KUWAIT LOCAL COMMERCIAL BANKS

• Main Author: Abuzarqa Rawan
• Format: Article
• Language: English
• Published: University of Oradea Publishing House 2019-09-01
• Series: Oradea Journal of Business and Economics
• Subjects: Bank financial performance; ROA; Financial ratios; MANOVA-ANOVA analysis; Panel regression; Hausman test
• Online Access: http://ojbe.steconomiceuoradea.ro/wp-content/uploads/2019/10/OJBE_vol-42-56-68.pdf
• ISSN: 2501-3599; 2501-3599

This study investigates the effect of Leverage, Total deposit to total assets, Total loans to total assets, Retained earnings to total assets, and Tangible book value per share ratios on banks’ financial performance for Return on Assets (ROA) as the dependent variable. The data were obtained from the financial statement (Income statement and Balance sheet) of the selected banks. The results were found by analyzing the financial ratios of five commercial banks in Al-Kuwait throughout five years (2013–2017). We used analytical methods which led us to the presented results. MANOVA and ANOVA analysis were used to show the difference between banks in their financial situation and performance, and then the panel regression model used to study relationships among variables. The Hausman test was applied to compare fixed and random effect models which were shown that the random effect model gives the better result. Our findings show that the independent variables “Total deposit” to “total assets” and “Retained earnings” to “total assets” have a strong significant impact on our dependent variable ROA. “Leverage” and “Total loans” to “total assets” have a less significant effect on the banks’ financial performance (ROA) while Tangible book value per share does not affect the ROA.