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A Comparison of Financial Performance of Domestic and Foreign Banks in Kosovo by Using DuPont Model

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  • Driton Balaj

    (University of Prishtina)

Abstract

The aim of this study is to compare financial performance of the domestic and foreign banks in the banking sector of Kosovo during the period of 2001-2007. We will use the DuPont financial analysis model to measure the comparative performance between domestic and foreign banks. Through this model, we have shown the factors that has driven banks to higher or lower Return on Equity (ROE).The research results show that foreign banks have been more efficient and profitable, thus having a higher ratio of Return on Assets (ROA) and Return on Equity (ROE).The foreign banks’ high ratio of Return on Equity is a result of a higher interest margin (PM), which indicates that foreign banks have made a better costs management and a larger use of financial leverage. Moreover, the results indicate that despite the domestic banks’ higher ratio of Assets Utilization (AU) compared to foreign banks, the main factor that has contributed to worsening of domestic banks’ profitability was the high costs of loans provisioning due to poor quality of the loan portfolio. This outcome suggests that domestic banks mostly had clients with less creditworthy and did not possess the adequate techniques to manage loan risk as foreign banks have.

Suggested Citation

  • Driton Balaj, 2015. "A Comparison of Financial Performance of Domestic and Foreign Banks in Kosovo by Using DuPont Model," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 11(6), pages 71-86, December.
  • Handle: RePEc:dug:actaec:y:2015:i:6:p:71-86
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    File URL: http://journals.univ-danubius.ro/index.php/oeconomica/article/view/3053/2981
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    References listed on IDEAS

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    5. Driton Balaj, 2010. "The Impact of Foreign Banks Presence on the Performance of Domestic Banks in Kosovo during the Period 2001-2007," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 4(4), pages 87-103, December.
    6. Saovanee Chantapong, 2005. "Comparative Study of Domestic and Foreign Bank Performance in Thailand: The Regression Analysis," Economic Change and Restructuring, Springer, vol. 38(1), pages 63-83, March.
    7. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
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    Cited by:

    1. Vasile Cocris & Maria-Ramona Sarbu, 2017. "The Structural Evolution Of The Banking System In Romania Under The Impact Of Fdi," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 2(1), pages 55-62, March.

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