Determinants of Resilient Bank Profitability in the PICs : Empirical Evidence from Fiji

Banks in the small island developing states of the Pacific have not only survived the Global Financial Crisis but remain strong and profitable raising the question: what determines the strong profitability of banks in the PICs? Moreover, despite the large and extended literature on the subject, determinants of bank profitability in the case of the PICs remain unknown, leaving policy makers ill–informed on the issue. Further, a domestic financial crisis or even the failure of one large bank could severely aggravate the already adverse circumstances of the PICs. Using Fiji as a case, this is the first study to systematically examine the determinants of bank profitability in a Pacific island context. Results show that none of the following might matter significantly: bank size, annual loan growth, bank liquidity, annual deposit growth, operational efficiency, market concentration, annual real GDP growth and annual inflation rate. Of the determinants tested, only one — non–interest income — appears to matter significantly for profitability. Policy implications are considerable