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Profitability Determinants of Big European Banks

Author

Listed:
  • Vesna Karadžić

    (Faculty of Economics, University of Montenegro, Podgorica, Montenegro)

  • Nikola Đalović

    (Erste Bank, Podgorica, Montenegro)

Abstract

The subject of research in this paper is the profitability of the biggest banks in the European financial market, some of which operate in Montenegro. The profitability of banks is influenced by a large number of factors, including internal banking and external macroeconomic factors. The aim of this paper is to use statistical and econometric methods to examine which factors and with what intensity affect the profitability of large banks in Europe. The empirical analysis used highly balanced panel models with annual data on 47 large banks from 14 European countries over the period 2013-2018. Three static panel models were estimated and evaluated (pooled ordinary least squares, model with fixed effects and model with random effects), as well as dynamic model utilizing general methods of moments. The POLS model was chosen as the best, confirming that all macroeconomic factors have a statistically significant impact on the profitability of big banks, while the impact of internal factors, which are controlled by the bank's management, is not significant. GDP growth rate, inflation rate and market concentration have a positive effect on profitability, while the membership of the European Union has a negative impact on profit, meaning that banks with headquarters outside the EU are more profitable.

Suggested Citation

  • Vesna Karadžić & Nikola Đalović, 2021. "Profitability Determinants of Big European Banks," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(2), pages 39-56.
    • Handle: RePEc:cbk:journl:v:10:y:2021:i:2:p:39-56
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol10no2-3.pdf
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    References listed on IDEAS

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    4. Vesna Bucevska & Branka Hadzi Misheva, 2017. "The Determinants of Profitability in the Banking Industry: Empirical Research on Selected Balkan Countries," Eastern European Economics, Taylor & Francis Journals, vol. 55(2), pages 146-167, March.
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    Cited by:

    1. Anas Alaoui Mdaghri & Lahsen Oubdi, 2022. "Bank-Specific and Macroeconomic Determinants of Bank Liquidity Creation: Evidence from MENA Countries," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(2), pages 55-76.
    2. Karim Belcaid & Mamdouh Abdulaziz Saleh Al-Faryan, 2024. "Determinants of Bank Profitability in the Context of Financial Liberalization: Evidence from Morocco," Business Perspectives and Research, , vol. 12(1), pages 164-180, January.
    3. Dawid Szutowski, 2024. "The impact of sectoral and macroeconomic variables on company profitability in the energy sector. Analysis using neural networks," Bank i Kredyt, Narodowy Bank Polski, vol. 55(3), pages 357-380.
    4. María J. López-Serrano & Fida Hussain Lakho & Stijn W.H. Van Hulle & Ana Batlles-delaFuente, 2023. "Life cycle cost assessment and economic analysis of a decentralized wastewater treatment to achieve water sustainability within the framework of circular economy," Oeconomia Copernicana, Institute of Economic Research, vol. 14(1), pages 103-133, March.
    5. Jarosław Nowicki & Piotr Ratajczak & Dawid Szutowski, 2024. "Impact of Macroeconomic Factors on Financial Liquidity of Companies: A Moderation Analysis," Sustainability, MDPI, vol. 16(11), pages 1-26, May.
    6. Jarosław Nowicki & Piotr Ratajczak & Dawid Szutowski, 2024. "Influence of Macroeconomic Factors on Financial Liquidity of Companies: Evidence from Poland," Risks, MDPI, vol. 12(7), pages 1-22, July.

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    More about this item

    Keywords

    bank profitability; big banks; macroeconomic variables; panel analysis; static models; GMM model.;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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