An empirical study on Banks profitability in the KSA: A co-integration approach

Abstract

Omar Masood¹, Bora Aktan* and Sahil Chaudhary

This study aims to give the analysis of the determinants of banks’ profitability in the Kingdom of Saudi Arabia (KSA) over the period 1999-2007. This paper investigates the co-integration and causal relationship between return of assets (ROA) and return of equity (ROE) of Saudi banks. The analysis employs Augmented Dickey Fuller (ADF) test, Johansen’s cointegration test, Granger causality test. Analyzing the cointegration and other tests on Saudi Arabian banking sector over the study period, the relationships between the two variables are examined. The empirical results have found strong evidence that the variables are co-integrated.