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.
ISSN: 1792-6599 (Online)