The Correlation of Bank Profits and Economic Conditions: The Case of Kazakhstan

Maya Katenova and Zhanat Syzdykov

This paper investigates the relationship between bank profitability and macroeconomic conditions. Such indicators as Return on Asset (ROA) and Return on Equity (ROE) are analyzed with such macroeconomic indicators as Gross Domestic Product (GDP), Customer Price Index (CPI), and IPI (Industrial Production Index). As the economy goes into a downturn, businesses and consumers default on loans, thus causing bank profits to decline. Alternatively, during economic expansions, lenders tend to take increasingly more risky loans and thus create a situation in which defaults increases. The banking industry is financial services industry, which follows economic needs. The results confirm the fact that banks’ performance depend on macroeconomic conditions.

DOI : http://dx.doi.org/10.21102/irbrp.2015.03.111.10