Journal of Applied Finance & Banking

Are Bigger Banks More Profitable than Smaller Banks?

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  • Abstract

    In this study, we apply Panel Threshold Model (Hansen, 1999) to examine whether there is optimal asset scale for interest spread to affect banks' profits. The empirical results demonstrate the existence of three thresholds, which divide banks into four groups into four groups according to asset scale. When asset scales of banks are in the 3rd capital group, banks profit by the widening in loan-deposit interest spread. For the other three groups, however, the relationship between profit and loan-deposit spread is negative. Banks' return on equity (ROE) is positively correlated with net commission income, net invest income, net non-operating income, and net interest income.