AN EMPIRICAL ANALYSIS OF THE IMPACT OF EFFICIENCY, RISK-TAKING, AND COMPETITION ON PROFITABILITY: AN APPLICATION IN IRAQ BANKING

Abstract

The aim of this study is  to investigate the impact of cost efficiency, competition, and risk-taking on the profitability of Iraqi commercial banks for the period between 2010 to 2020. We employ the Two-step Generalized Method of Moments (GMM-SYM) system estimator to examine the relationship between variables. Specifically, we close the empirical research vacuum in the Iraqi banking industry by investigating the effects of varying levels of risk-taking behavior, as well as varying levels of competition and cost-efficiency, on bank profitability. We find that the Bank soundness index, Credit Risk, and Liquidity Risk affect the profitability of banks if Bank soundness is significantly and positively associated with profitability, while Liquidity Risk is negatively associated with ROA, and Credit Risk is negatively associated with NIM. We found that Iraqi banks that have a higher level of cost efficiency have a higher return on assets, and that increased competition will lead to lower profitability in the Iraqi banking industry.