Attributing Sudanese Banks Profitability: An Overlooked Approach

Abuzar M. A. Eljelly

Abstract


This study attempts basically to decompose the profitability of the Sudanese banks forthe period 2005-2010 by using the DuPont system of financial analysis which is based mainly onthe analysis of return on equity (ROE). The return on equity model disaggregates performanceinto threemaincomponents: net profit margin, total asset turnover, andthe equity multiplier.The trend analysis part of the study found that the shareholders' profitability as manifested byROE is driven primarily by the net profit margin (PM), while the contribution of assets turnoverand equity multiplier are not as muchsignificant. The regression analysis reveals thatthe netprofit margin is mostly the sole variable that impacts ROE, by an almost 1:1 basis. However,ROA is influenced by net profit margin and turnover, and bank size. Also net profit margin andturnover are positively and significantly related.The control variable, bank size is found to affectROA, net profit margin and leverage in a positive and significant way, while affects turnovernegatively. Business experience, as proxied by bank age has no influence over profitabilitycomponents, except assets Turnover (efficiency measure) of the bank.

Keywords


DuPont;Return on equity;Net profit margin;Equity multiplier; Asset utilization ; Sudanese banks

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