Factors Affecting Return on Assets (ROA) in the Banking Sector of Selected Arab Countries: Is There a Role for Financial Inclusion and Technology Indicators?

The objective of this study is to examine, using a dynamic panel data framework, the effects of financial inclusion on the performance of the banking sector, as measured by the return on assets, for eleven Arab countries during the period 2012-2019. In addition to financial inclusion and technologies indicators, our analysis incorporates banking and macroeconomic variables. The study reveals that bank-specific variables have a greater impact on the profitability of banks than macroeconomic variables. The results show that there is a positive and significant impact of the bank’s assets, the bank solvency, the credit growth, the economic growth rate, and the inflation rate on the profitability of the banking sector. However, the return on assets is unaffected by fluctuations in nonperforming loans and the interbank lending rate. Regarding indicators of financial inclusion and technologies, the study finds no evidence of significant effects of automated teller machines (ATM) distribution and bank branch density on return on assets.