Does the Financial Performance of Banks Change During the Global Financial Crisis? The Case of Palestine

Abstract

The main goal of this study is empirically evaluating the financial performance of Palestinian banks during the period 2005–2011. The main purpose of these selected periods is to the capture the global financial crisis time effect fully. Both bank-specific and macroeconomic variables are used to investigate the financial performance of banks during the global financial crisis. Fixed-effects and Random-effects methodologies are used to do empirical analysis. The study concluded that the macroeconomic factors have more impact on the profitability of the banks in Palestine, in contrast with bank-specific profitability determinants.

Appendices

Appendices

Appendix 1: Panel Unit Root Tests for Palestinian Banks

Variables		Levels
		LLC	IPS	M-W
LROE	τT	−6.49*	0.069	33.68*
	τμ	−5.84*	−1.03	33.91*
	τ	−4.19*	–	44.99*
LROA	τT	−9.58*	−0.340	38.48*
	τμ	−8.25*	−3.01*	44.14*
	τ	−2.15	–	28.28
LCAR	τT	−9.59*	−0.547	38.56*
	τμ	−5.47*	−1.634**	37.34*
	τ	−0.313	–	9.34
LLQR	τT	−6.117*	−0.1434	22.04***
	τμ	−3.84*	−1.02	28.68*
	τ	−16.30*	–	20.68
LASQ	τT	−8.13*	−0.0894	24.23**
	τμ	−1.57***	0.6591	10.66
	τ	−2.369***	–	31.29*
LEFF	τT	−5.86*	−0.378	41.10*
	τμ	−3.25*	−1.73**	33.17*
	τ	−0.0612	–	12.35
LINF	τT	−8.65*	−0.7026	51.88*
	τμ	−5.41*	−3.32*	52.78*
	τ	−1.89**	–	26.89**
LIR	τT	−15.16*	−2.13**	87.62*
	τμ	−14.75*	−6.37*	87.41*
	τ	−14.82*	–	107.4*

1. Notes ROE represents the liquidity. τ_T represents the most general model with a drift and trend; τ_T is the model with a drift and without trend; τ is the most restricted model without a drift and trend. Optimum lag lengths are selected based on Schwartz Criterion. *, **, *** denote rejection of the null hypothesis at the 1, 5, 10% levels. Tests for unit roots have been carried out in E-VIEWS 6.0

Appendix 2: Panel Unit Root Tests for Palestinian Banks

Variables		1st differences
		LLC	IPS	M-W
LROE	τT	−4.39*	0.538	13.59
	τμ	−5.91*	−1.204	34.51*
	τ	−6.801*	–	52.66*
LROA	τT	−6.39*	0.006	27.53*
	τμ	−7.65*	−2.104**	37.26*
	τ	−9.047*	–	76.42*
LCAR	τT	−12.24	−1.215	62.61*
	τμ	−9.56*	−3.21*	53.51*
	τ	−9.08*	–	74.47*
LLQR	τT	−33.012*	−4.71*	48.45*
	τμ	−11.55*	−3.37*	42.26*
	τ	−7.97*	–	65.64*
LASQ	τT	14.42*	−1.028	47.03*
	τμ	−12.06	−3.017*	43.26*
	τ	−7.28*	–	49.61*
LEFF	τT	−5.06*	0.368	30.93*
	τμ	−4.502*	−1.767	30.90***
	τ	−6.38*	–	66.13*
LINF	τT	−8.041*	−0.942	59.58*
	τμ	−10.02*	−4.74*	84.08*
	τ	14.59*	–	130.67*
LIR	τT	−18.34*	−1.97	87.62*
	τμ	−14.75*	−6.37*	83.07*
	τ	−21.22*	–	128.95*

1. Note ROE represents return on equity; CAR is a capital adequacy; EFF is a management quality; LQR represents the liquidity. τ_T represents the most general model with a drift and trend; τ_μ is the model with a drift and without trend; τ is the most restricted model without a drift and trend. Optimum lag lengths are selected based on Schwartz Criterion. *, **, *** denote rejection of the null hypothesis at the 1, 5, 10% levels. Tests for unit roots have been carried out in E-VIEWS 6.0

Appendix 3: Simple Regression Results for ROE

Dependent variable: LROE
Method: panel EGLS (period SUR)
Date: 12/10/13 Time: 21:12
Sample: 2005 2011
Periods included: 7
Cross-sections included: 7
Total panel (unbalanced) observations: 46
Linear estimation after one-step weighting matrix
White period standard errors and covariance (no d.f. correction)
WARNING: estimated coefficient covariance matrix is of reduced rank
Variable	Coefficient	Std. error	t-statistic	Prob.
C	−1.389623	0.598229	−2.322894	0.0255
LCAR	−0.913250	0.040116	−22.76534	0.0000
LASQ	0.028821	0.009926	2.903502	0.0060
LEFF	0.135535	0.087626	1.546743	0.1300
LLQR	0.208978	0.020314	10.28757	0.0000
LIR	0.267656	0.045464	5.887140	0.0000
LINF	0.361460	0.110031	3.285083	0.0022
Weighted statistics
R-squared	0.921331	Mean dependent var		−2.181822
Adjusted R-squared	0.909228	S.D. dependent var		5.392973
S.E. of regression	0.831023	Sum squared resid		26.93338
F-statistic	76.12488	Durbin-Watson stat		2.014915
Prob (F-statistic)	0.000000
Unweighted statistics
R-squared	0.480311	Mean dependent var		−2.529507
Sum squared resid	17.61176	Durbin-Watson stat		0.970266

Appendix 4: Simple Regression Results for ROA

Dependent variable: LROA
Method: panel EGLS (period SUR)
Date: 12/10/13 Time: 21:10
Sample: 2005 2011
Periods included: 7
Cross-sections included: 7
Total panel (unbalanced) observations: 46
Linear estimation after one-step weighting matrix
White period standard errors and covariance (no d.f. correction)
WARNING: estimated coefficient covariance matrix is of reduced rank
Variable	Coefficient	Std. error	t-statistic	Prob.
C	−1.387116	0.598005	−2.319573	0.0257
LCAR	0.086919	0.040202	2.162071	0.0368
LASQ	0.028819	0.009927	2.903113	0.0061
LEFF	0.134471	0.087650	1.534174	0.1331
LLQR	0.208811	0.020347	10.26230	0.0000
LIR	0.267850	0.045450	5.893320	0.0000
LINF	0.361662	0.110054	3.286226	0.0022
Weighted statistics
R-squared	0.571212	Mean dependent var		−3.802245
Adjusted R-squared	0.505245	S.D. dependent var		8.318261
S.E. of regression	0.831325	Sum squared resid		26.95297
F-statistic	8.659012	Durbin-Watson stat		2.014070
Prob (F-statistic)	0.000005
Unweighted statistics
R-squared	0.157817	Mean dependent var		−4.333463
Sum squared resid	17.58328	Durbin-Watson stat		0.970544