Essay: Profitability Variables

Sample Essay

Net interest margin is the difference between the interest income as of the borrower and interest expense to the depositors expressed as a percentage of average received assets. NIM is a basic method that measures how profitable a bank is in terms of loans for conventional banks. However, Net Income Margin (NIM) for Islamic banks is profits from interest-free lending contracts, which BankScope classifies NIM for Islamic banks as profit that is interest-free lending to formulate the data more consistent with other types of banks. (Bashir, 2000) (Brown, 2003) (Ben Naceur, 2003) included NIM as a performance indicator.

Return on Asset is a useful indicator of bank profitability. ROA is computed by dividing net income and total assets giving a ratio of earnings generated from invested capital. ROA is management effective in generating profit on every dollar of investment (Hassoune, 2002) . Serious emphasis is put on ROA in the banking business as it exactly measures asset performance. Both (Hassan, et al., 2004) and (Ben Naceur, 2003) include ROA as a performance display and like dependent variables. ROA is the dependent variable in this study which will help to identify the value of bank assets.

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