Evaluation of the Effects of Capital Injection on the Performance of Government Banks

Raising capital can be considered as one of the current strategies suitable for financing in particular conditions. As government banks can make use of government banks financial assistance if necessary, the government has financed its banks’ resources for raising capital in recent years. Meanwhile, as the government may apply some pressure to grant cheap directed credits following the capital raising, a question may arise on how the capital injection influences the performance of government banks. Accordingly, this study employs the data panel approach to evaluate the effects of the government capital injection on the marginal profit of government banks, as one of the banks’ performance measures between the years 2000-2015. The findings show that the marginal profit of each year is influenced by the capital injection of the same year, as well as that of the previous one. Furthermore, amongst the control variables, the relative size, the credit risk, zero-interest net income, operational inefficiency, as well as inflation rate have positive impacts on the marginal profits of government banks. However, the square of capital ratio, logarithm of facilities, legal reserves, as well as inefficiency of the banks’ management incur negative effects on government banks’ marginal profits.