Banks’ profitability determinants in post-crisis European Union

Abstract

The purpose of this article is to examine the impact of selected internal and external factors on a bank’s profitability. The research investigates the impact of operational size, liquidity, risk appetite, management efficiency, product diversification, concentration, GDP growth and inflation change on the profitability of sample of 4179 European commercial banks for the period between 2011 and 2015. The input data were obtained from the Orbis Focus and the World Bank databases. The determinants were used to construct two models with ROAA and ROAE as a proxies and regression analysis using between groups panel approach was conducted. It has been found that growing economy impacts banks’ profitability positively. It has been robustly confirmed that management efficiency, product diversification, market concentration and inflation result in decreased profitability. The operational size has been found to be negatively linked to changes in net results but was confirmed only with ROAA model. Similarly, statistically significant results with regard to liquidity were found only for ROAA model and the correlation was positive. The strong negative impact of market concentration on profitability is an interesting finding allowing for further exploration of reasons for this unexpected vector of correlation.

Do the Same Determinants Affect Banks’ Profitability and Liquidity? Evidence from West Balkan Countries Using a Panel Data Regression Analysis

“…Coffinet and Lin [38] stress-tested the banks' profitability in France, and they came to the conclusion that inflation affects the banks' profitability negatively. The same negative effect was also shown by Korytowski [36] on a sample of 4179 European commercial banks. A positive impact on the sample of banks in Latin America was also shown by Saona [33].…”

“…Their findings show that the loan-to-deposit ratio has a positive and significant impact on return on average assets (ROAA) and return on average equity (ROAE) for all countries considered. The same positive impact of this ratio on the banks' profitability was shown by Korytowski [36] on a sample of 4179 European commercial banks for the period between 2011 and 2015. For the same geographic area, the EU27, but for the years before and after the financial crisis, from 2004 to 2011, Petria et al [32] show a negative relationship between the loan-to-deposit ratio and banks' profitability.…”

“…The presumption is that this determinant has a positive impact on banks' profitability. This relationship is proved by Coffinet and Lin [38], Djalilov and Piesse [26] in both considered groups of countries, Davis et al [11], Petria et al [32], Guillén et al [42], Demirguc-Kunt and Huizinga [23], Korytowski [36]. Le and Ngo [43] proved a positive impact on banks' profitability measured by ROA, but when using NIM as banks' profitability measure, the results showed a negative impact.…”