The determinants of commercial banking profitability in low-, middle-, and high-income countries

•We analyze how bank-specific, macroeconomic and industry-specific factors affect the profitability of commercial banks.•Our sample includes 10,165 commercial banks across 118 countries over the period from 1998 to 2012.•We group the countries according to their income levels in low-, middle-, and high-income countries.•The determinants of bank profitability vary quite widely across the different country income categories.•Also, the recent financial crisis has affected bank profitability, with different effects on the banks in the three country income categories. Using a broad bank-level dataset and the GMM estimator technique described by Arellano and Bover (1995), this paper analyses how bank-specific characteristics, macroeconomic variables, and industry-specific factors affect the profitability of 10,165 commercial banks across 118 countries over the period from 1998 to 2012. Grouping the countries according to three income levels, we show that the determinants of bank profitability included in our model can explain existing profitability differences among commercial banks in low-, middle-, and high-income countries. The profitability determinants vary quite widely across the different levels of income in terms of significance, sign and size of the effect. The level of income has thus an important impact on the determinants of bank profitability.