Profitability of unit banks versus the profitability of branch banks

Abstract

Scope and Method of Study: In the past decade, considerable research has been undertaken concerning the performance of both unit and branch banks. This study has concentrated upon the comparison of unit and branch bank performance in one selected area, profitability. In order to empirically test the comparison of unit and branch banks profitability, 30 states were divided into unit banking states and branch banking states. Such a division resulted in two groups of 15 unit banks states and 15 branch banks states. Four types of data were collected for each state: (1) average assets, (2) average deposits, (3) per capita income, and (4) urban density. These four categories of data were then subdivided into various ranges of values. Subsequently, branch and unit banks · with identical values of average assets, average deposits, per capita income, and urban density were compared by use of three profitability ratios.

Findings and Conclusions: Results of this study revealed that unit banks are more profitable than branch banks, generally speaking. Unit banks are more profitable than branch banks when both unit and branch banks of identical average asset classes are compared. It is also concluded that branch bank profitability is inversely related to average asset and deposit size. For states with equal average assets, equal average deposits, equal per capita income, and equal urban density unit banks are generally more profitable than branch banks except for the branch bank states with per capita income below $2,500 and urban density below 50%. Furthermore, the conclusion is reached that profitability is inversely related to per capita income and urban density in both branch and unit banking states.