Write a paper (1,250-1,500 words) that describes how borrowed theory can be applied to an identified problem.
Sample Solution
To validate our studies we have tested multicollinear relationship between independent variables by employing Pearson Correlation test. Further, the study employs Return on assets (ROA), Return on equity (ROE) and Net Interest Margin (NIM) as the three dependent variables. From the analysis undertaken it was discovered that the profitability and net interest margin of U.K banking system is influenced by banks -specific, industry -specific and macro-economic factors. The result generally indicated that Capital Ratio has a positive impact with ROA and NIM, but had a negative Impact with ROE. The positive effect states that banks are following more risk seeking approach. Further, Credit Risk has a negative effect with ROE and NIM, but seems to have a positive effect with ROA. This shows that banks are giving high loans which in turn has a very high rate of interest attached to it in order to increase profitability. Furthermore, overhead has a negative impact on ROA, ROE, stating that increase in expenses reduces profitability and margin of U.K banks. However, NIM has positive effect with overheads. Suggesting a part of cost is being passed to its depositors and lenders in the form of high lending rates and lower deposit rates. Further, GDP has a positive effect on profitability determinants ROA and ROE which implies that when GDP increases profitability of banks also increase. However, GDP had a negative effect with NIM suggesting that market growth has an effect on bankâs NIM. Finally, inflation had a positive effect on ROA and NIM which suggests that bank were able to anticipate change in interest rate and could able to adjust them accordingly. CHAPTER SIX: SUMMARY AND CONCLUSION 6.1 Introduction: This dissertation examines the main determinants banks profitability and net interest margin of the UK commercial banks form 2002 to 2008.Three performance measures have been employed in this study namely ROE, ROA and Net Interest Margin. Profitability of banks indicates the generation of profits through multiple product offered by banks which include interest, income and non-interest. On the other hand, Net Interest Margin reflects on the generation of income by banks through a more conventional and traditional way of business i.e. collection of depos>
To validate our studies we have tested multicollinear relationship between independent variables by employing Pearson Correlation test. Further, the study employs Return on assets (ROA), Return on equity (ROE) and Net Interest Margin (NIM) as the three dependent variables. From the analysis undertaken it was discovered that the profitability and net interest margin of U.K banking system is influenced by banks -specific, industry -specific and macro-economic factors. The result generally indicated that Capital Ratio has a positive impact with ROA and NIM, but had a negative Impact with ROE. The positive effect states that banks are following more risk seeking approach. Further, Credit Risk has a negative effect with ROE and NIM, but seems to have a positive effect with ROA. This shows that banks are giving high loans which in turn has a very high rate of interest attached to it in order to increase profitability. Furthermore, overhead has a negative impact on ROA, ROE, stating that increase in expenses reduces profitability and margin of U.K banks. However, NIM has positive effect with overheads. Suggesting a part of cost is being passed to its depositors and lenders in the form of high lending rates and lower deposit rates. Further, GDP has a positive effect on profitability determinants ROA and ROE which implies that when GDP increases profitability of banks also increase. However, GDP had a negative effect with NIM suggesting that market growth has an effect on bankâs NIM. Finally, inflation had a positive effect on ROA and NIM which suggests that bank were able to anticipate change in interest rate and could able to adjust them accordingly. CHAPTER SIX: SUMMARY AND CONCLUSION 6.1 Introduction: This dissertation examines the main determinants banks profitability and net interest margin of the UK commercial banks form 2002 to 2008.Three performance measures have been employed in this study namely ROE, ROA and Net Interest Margin. Profitability of banks indicates the generation of profits through multiple product offered by banks which include interest, income and non-interest. On the other hand, Net Interest Margin reflects on the generation of income by banks through a more conventional and traditional way of business i.e. collection of depos>
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