Impact Of Corruption On Banking Profitability In Asean Countries : An Empirical Analysis

Abstract

Exploring key determinant variables that influence bank profitability is of interest to bankers and investors as well as regulators, as profitability is regarded as a necessary condition for the stability of the banking system. In this paper we conducted a study to determine the profitability of banking firms covering six countries in Association of Southeast Asian Nations (ASEAN): Indonesia, Malaysia, Singapore, Thailand, the Philippines and Vietnam. Our study found that a higher ratio of personnel expenses to total cost (PERSTC) and equity to total assets (EQTA), increase bank profitability and are negatively associated with higher regulatory capital (CAR), net loan total asset (NLTA) and cost to income ratio (CIR). Economic growth (EGRW) is positive but not significant. In terms of country effect, only Indonesia is significant. Surprisingly, the corruption index (CRPIX) is positive and its significance to profitability underlines the ability of banking firms to enjoy benefits in a bad governance environment.