This paper intends to assess the
interaction between stability factors and profitability proxies with
macroeconomic factors as controllable variables. The analysis used bank risk
metrics (LLRs, Credit Growth, and NPLs) and bank performance proxies (NIM, ROE,
and ROA) with a dataset from 40 countries with 350 active commercial banks. The
study uses Autoregressive Distributed Lags estimation with Dynamic Fixed Effect
method (ARDL-DFE) to assess both short and long-run interaction effects. The
analysis finds that both are interesting for a better sustainable banking
system: the results evidenced a causal interdependence effect between bank
profitability ratios and bank stability proxies. Furthermore, three causality
tests and cointegration analyses were significant enough, which allowed us to
conclude that caring for bank risk is caring for bank performance. This study
recommends regulators (central banks and the Basel Committee) to enforce the
bank profitability to mitigate related bank risks. The study also suggests
(especially Basel Committee) a regulator tool called Bank Performance/Profit
Requirement Ratio (BPRR).
JEL classification numbers: P430, G4, E510.
Keywords: Bank, Risk, Performance, Stability, Profitability,
Interdependence, DFE, SSA, Africa.