The determinants of financial performance of non-bank financial institutions in Botswana

Abstract

Both non-bank financial institutions and commercial banks play a key role in achieving a stable and sound financial system in an economy of a country. This study investigates the determinants of non-bank financial institutions financial performance in Botswana. The analysis used balanced panel data of 30 non-bank financial Institutions for the period of 201-2014. The non-bank financial institution financial performance is estimated using both panel random effects method and Three Stage least squared dynamic. Return on Assets is used as a proxy for financial performance, whereas capital adequacy, management efficient, firm size, retained profits from the previous year and macro-economic variables of Inflation and GDP growth rate have been used as independent variables. In summary, the empirical results confirm that capital adequacy, management efficiency and inflation have a negative and significant influence on the financial performance of non-bank financial institutions; while retained profits from the previous year have a positive and significant effect on financial performance. A non-linear relationship between firm size and financial performance was revealed in the results; however it displayed a non-significant impact.