The role of banks in augmenting the economic growth of a given country is highly acknowledged. Impact of macroeconomic variables on profitability of commercial banks have shown a mutual dependence. Due to oil crisis in the Middle East, Sultanate of Oman's economy had witnessed few market corrections both in money market and capital market. Despite these financial chaos, Sultanate of Oman's commercial banking sector has registered a sustained growth. The aim of the study is to observe the bank specific and macro-economic determinants of the bank's profitability in Sultanate of Oman over the time period from 2007 to 2016, taken six banks for the study. The bank profitability is measured by return on assets (ROA) and return on equity (ROE) as a function of bank specific determinants such as Assets size, Capital Adequacy, Asset quality, liquidity, Deposit and Income-Expenditure structure; macroeconomic elements like GDP, Inflation rate and Real Interest Rate. Using a balanced panel data set, the study showed that asset size and non-interest income have a positive and significant effect on bank profitability but whereas, Deposits has a negative relationship. With regard to macroeconomic variables, the GDP rate has a positive and real interest rate and inflation rate affects the profitability of banks negatively. This study suggested that banks can improve their profitability through increasing bank size and non-interest income, decreasing credit/asset ratio. In addition, higher GDP can lead to higher profitability in banks.

The role of banks in augmenting the economic growth of a given country is highly acknowledged. Impact of macroeconomic variables on profitability of commercial banks have shown a mutual dependence. Due to oil crisis in the Middle East, Sultanate of Oman's economy had witnessed few market correcti...