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Sudanese Banks’ Financial Performance: A Study of Return on Equity Ratio

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A recent analysis has revealed that the average return on equity ratio (ROE) for Sudanese banks is 30.29%, with a standard deviation of 5.1. The highest ROE recorded was 37.1 in 2015, while the lowest was 23.3 in 2008.

Impact of Return on Equity Ratio

The study found that an increase in ROE indicates improved profitability and strengthened financial performance for banks. However, the high standard deviation of ROE over the years suggests a significant fluctuation in returns, indicating high risks in the banking sector.

Factors Affecting Return on Equity Ratio

Capital Adequacy Ratio

The average Capital Adequacy Ratio (CAR) was 14.91%, with a maximum of 22% in 2017 and a minimum of 7.1% in 2009. The standard deviation of CAR was 5.05%. This suggests that there is a significant variation in the level of capital adequacy among Sudanese banks.

Non-Performing Loans

The average rate of Non-Performing Loans (NPL) was 14.72%, which is higher than the internationally accepted benchmark of 6%. The high standard deviation of NPL (7%) indicates sharp instability during the period studied, adding to default risks.

Correlation Analysis

A correlation analysis revealed that there is a significant relationship between financial performance and both CAR and NPL. The study found that CAR has a positive effect on financial performance, while NPL has a negative impact.

Hypothesis Testing

The study tested two hypotheses:

  • H01: the correlation of capital adequacy ratio and financial performance is not significant
  • H02: the correlation of non-performing loan and financial performance is not significant

The results showed that the first hypothesis was rejected, indicating a significant positive relationship between CAR and financial performance. However, the second hypothesis was accepted, suggesting that there is no significant relationship between NPL and financial performance.

Regression Analysis

The regression analysis revealed that NPL has a statistically significant negative impact on financial performance (p-value = 0.040). This suggests that an increase in NPL leads to a decrease in financial performance.

Conclusion

Overall, the study highlights the importance of effective credit risk management for Sudanese banks to improve their financial performance and reduce risks.