Financial performance determinants in Kuwaiti banks: The influence of size, equity, and leverage

Abstract

This study examines the relationship between bank size and financial performance in the Kuwaiti banking sector, focusing on key variables such as asset size, shareholders' equity, employee count, branch count, customer deposits, total loans, and leverage ratio. Using data from 10 Kuwaiti banks over the period 2010 to 2021, the analysis employs the Ordinary Least Squares (OLS) regression method to explore the impact of these factors on two primary financial performance indicators: return on assets (ROA) and return on equity (ROE). The results reveal that shareholders' equity, employee count, and leverage ratio are positively and significantly correlated with ROA, while total assets are negatively correlated, suggesting inefficiencies in larger institutions. In terms of ROE, only shareholders' equity and leverage ratio show a significant positive relationship. Other factors, such as branch count, customer deposits, and total loans, do not exhibit any statistically significant effect on either ROA or ROE. The findings suggest that while certain size-related factors, such as equity and leverage, play a crucial role in enhancing financial performance, larger asset sizes may not necessarily lead to higher profitability due to operational complexities. This study highlights the importance of focusing on equity structure and leverage strategies in improving bank profitability, rather than solely pursuing growth in asset size.