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Return on Equity Ratio Reaches 30.29%, Despite Fluctuations in Sudanese Banks’ Performance

A recent analysis of the financial performance of Sudanese banks has revealed a significant increase in Return on Equity (ROE) to 30.29%. This milestone, however, is accompanied by concerns over high default risks and fluctuations in the banking sector.

Key Findings

  • The standard deviation of ROE has increased significantly over the years, indicating a sharp return fluctuation and high risks in Sudanese banks.
  • The maximum rate of ROE was recorded at 37.1 in 2015, while the minimum rate was 23.3 in 2008.
  • The average Capital Adequacy Ratio (CAR) stands at 14.91%, with a standard deviation of 5.05, indicating a significant gap between the banks’ capital adequacy and international standards.
  • Non-Performing Loans (NPLs) account for an average rate of 14.72%, exceeding the international benchmark of 6%.
  • The high standard deviation value for NPLs of 7% indicates sharp instability during the period studied, adding to default risks.

Correlation Analysis

The study employed correlation analysis to examine the relationship between ROE and CAR, as well as ROE and NPLs. The results showed:

  • A significant positive correlation between ROE and CAR, indicating that an increase in capital adequacy is associated with improved financial performance.
  • A significant negative correlation between ROE and NPLs, suggesting that an increase in non-performing loans is linked to decreased financial performance.

Regression Analysis

The study used regression analysis to investigate the impact of CAR and NPLs on ROE. The results showed:

  • Both variables have a significant impact on ROE:
    • An increase in capital adequacy has a positive coefficient, indicating improved financial performance.
    • An increase in non-performing loans has a negative coefficient, linking it to decreased financial performance.

Hypothesis Testing

The study tested two hypotheses:

  • H01: The correlation between CAR and ROE is not significant (rejected)
  • H02: The correlation between NPLs and ROE is not significant (accepted)

Conclusion

While Sudanese banks have made significant progress in improving their financial performance, there are still concerns over high default risks and fluctuations in the banking sector. The results highlight the importance of maintaining a healthy capital adequacy ratio and managing non-performing loans to ensure sustainable financial performance.