A Research Study On A Decent Interest On Their Deposits Are Institutional And Corporate Depositors
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decent interest on their deposits are institutional or corporate depositors. Billett, Garfinkel, and O 'Neal (1998) evidenced that whenever there is an increase in risk, banks raise more funds from insured deposits for their operations and as a result of that the market punish the banks by increasing the cost of funding for such banks. The researcher also finds that banks that are downgraded rely more on insured deposits and the justification was that bank managers perceive the increased in cost of insured deposits to be lesser than the cost of uninsured non-deposits funds. An increased future funding cost is associated with rating downgrades.
This chapter presents the methodology…show more content… The sovereign data was obtained from the public website of Fitch and S&P. The end of year long term local currency sovereign rating were converted into numerical scale for instance lower numbers correspond to lower ratings and also higher number correspond to higher ratings. Example AAA=20, AA+=19… CC=1 in line with Cantor and Packer (1997); Huimin Li, Jeon, Cho, and Chiang (2008). Macroeconomic data which include GDP, Inflation and money supply were obtained from the World Bank Development Indicators for the same periods the study is undertaken.
3.3 Definition and Measurement of Variables
This section presents the variables used for the study, the justification for their inclusion and their measurement.
The dependent variable for the first model is the bank profitability and this is proxy with return on average assets as the main measure of profitability. The ROAA is the ratio of net incomes to average total assets stated in percentage. The ROAA reveals the bank’s management ability to generate incomes from the bank’s assets. It also gives indication on how effective the assets of the bank are utilized in generating revenues as well as the operational performance of banks (Jahan, 2012). In the literature, ROAA has been accounted to be the main measure of profitability. Golin and Delhaise (2013) pointed out, the ROAA is a very key ratio in