The influence of financial development in the banking sector profitability: Evidence from 113 and 125 countries in 2000-2020

Jiménez-Sotelo R.A. · Trimestre Economico (2026) · DOI: 10.20430/ete.v93i371.2768

Resumen

Excessive bank profitability has often been an early indicator of failure, but it may also reflect excessive market power. Therefore, for effective financial policymaking, it is crucial to determine whether financial development influences bank profitability. This research finds that such influence does exist, albeit a negative one. Using panel data techniques, I examine the causal relationship between national credit depth and the profitability of the banking sector. The results show that, as a guild, bankers would face a dilemma between promoting greater national credit depth —to foster greater economic development—or refraining from doing so, in order to maintain their higher profitability. This poses significant challenges for financial policy, especially in less developed countries.

Instituciones: Universidad Nacional Mayor de San Marcos