Empirical Analysis Of Cost Income On ROA And ROE In Determining The Stability Of Banks In Uganda

The primary objectives of our study is to determine the effect of cost income on banks'Return on Asset(ROA)and Return on Equity(ROE)and to examine the financial stability of selected Ugandan banks.We collect data from the Bank of Uganda Library comprising fourteen financial institutions from the year 2006 to 2015.With the fixed-effect model,we estimate the impact of cost income on the banks' return on assets and equity controlling for the potential unobserved heterogeneities,however trivial,across the banks and over the years.We document a negative and highly statistically significant causal relations between cost income and both ROA and ROE.Our empirical analysis extends to examining the stability of the financial institutions adopting the Z-score approach which is conventional in the literature.With the rule of thumb on the direct proportionality of the Z-score and banks' stability,we ascertain the most and least financially stable banks in Uganda within our time frame.