Evaluation Of Financial Performance In Yemeni Commercial Banks

The banking sector is of great importance in the economies of developed and developing countries,due to the relatively large size of banks compared to other types of companies and the multiplicity of stakeholders who have a rel ationship with the bank such as shareholders,depositors and borrowers.The safety of the national economy and the effectiveness of a country's monetary policy depends on the integrity of the financial system specifically the banks.The financial performance of the bank is considered as an important means of identifying the strengths and weaknesses in the performance and various activities of the banks,which aim to provide the necessary information to take appropriate decisions that will enable the Bank to achieve revenues and profits and continue its progress in the competition market.This study aims to the Evaluation of Financial Performance in Yemeni Commercial Banks,the study used three different sectors to measure financial performance of Yemeni Commercial Banks are Return on Assets(ROA),Return on Equit y(ROE)and Return on Deposits(ROD)as dependent variables,While Bank Size(SIZE),Cash Ratio(CR),Equity Ratio(ER),Total Loans to Total Deposits Ratio(TLTD),Total Capital to Total Assets Ratio(TCTA)are considered as independent variables.The study sample is composed of Yemeni commercial banks which limited the available data and information on five commercial banks out of the total of eight banks after e xclusion of Islamic banks because of their special nature and their inconsistency with the nature of commercial banks data.Data has been collected from different sources,primary sources such as annual reports issued by the departments of Yemeni commercial banks and Central Bank of Yemen(CBY),and the data contained in the financial statement was beneficial for the extraction of the financial indicators for balance sheet elements and the account of profit and loss involved during the period of(2004-2015).To achieve this study,the statistical programs(EViews 10,Stata 15)was used.We have applied test of unit root,namely the Augmented Dickey-Fuller(ADF)and The Im-Pesaran-Shin(IPS)tests,and all variables in our study are mixed of I(0)or I(1).Therefore,DOLS and FMOLS approaches are more efficient in the presence of a mix order of integration,enabling integration of the respective variables in the cointegrated framework.Moreover,Toda-Yamamoto approach to Granger causality analysis shows that there exists unidirectional causality jointly granger causality running from independent variables to dependent variable in all model except dependent variables(SIZE and CR)models.In our study DOLS result estimations show statistically significant and positive effects of CR,ER,TLTD on financial performance measured by(ROA,ROE,ROD)in the long run.Besides,our econometric results show that statistically negative and insignificant effects of Bank Size(SIZE)on Return on Asset(ROA)in the long run.Moreover,FMOLS result estimations show statistically significant and positive effects of SIZE,ER,TLTD on financial performance measured by(ROA,ROE,ROD)in the long run.Besides,our econometric results show that statist ically negative and insignificant effects of CR on financial performance measured by(ROE)in the long run.Thus,this study recommends that the Central Bank of Yemen when assessing the performance of Yemeni commercial banks gives greater weights for the tow fina ncial indicators that have the most impact to financial performance: Equity R atio(ER),and total loans to total deposits ratio(TLTD).