A COMPARATIVE ANALYSIS ON BANKING SYSTEMS’ PROFITABILITY BETWEEN WESTERN EUROPEAN AND CEE COUNTRIES

• Main Author: Bogdan Florin FILIP
• Format: Article
• Language: English
• Published: Technopress 2016-06-01
• Series: Journal of Public Administration, Finance and Law
• Subjects: roaa; roae; bank-specific determinants; industry-specific determinants; macroeconomic determinants; crisis
• Online Access: http://www.jopafl.com/uploads/issue9/A_COMPARATIVE_ANALYSIS_ON_BANKING_SYSTEMS_PROFITABILITY_BETWEEN_WESTERN_EUROPEAN_AND_CEE_COUNTRIES.pdf

The paper is focused on analysing comparatively the banking systems’ profitability and, especially, its determinants in two major groups of European countries, namely the western ones and the central and eastern ones, considering that they have significant different social and economic conditions which may influence banking activity. Starting from the scientific literature, are identified bank-specific, industry specific and macroeconomic determinants of banking profitability, but it is also taken into consideration the manifestation of the economic and financial crisis as an important supplementary determinant, while banking profitability is proxied by the indicators ROAA and ROAE. Using econometric methods to process the data for these groups, each of 12 countries, for 2000-2011, we concluded that for both groups, economic growth is enhancing banking systems’ profitability, while credit risk and crisis are affecting it significantly. Beside these, in western European countries, banking profitability is significantly affected by capital adequacy and inflation, but positively influenced by liquidity, while in CEE countries it is strongly affected by unemployment and positively influenced by activity mix. Thus, we consider that banks in Western Europe should especially take actions for improving their capital adequacy and limit the credit risk, while in CEE countries banks should focus on reducing credit risk and the government should take actions against unemployment.