IDEAS home Printed from https://ideas.repec.org/a/cbk/journl/v10y2021i2p39-56.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://www.cbcg.me/repec/cbk/journl/vol10no2-3.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hirtle, Beverly J. & Stiroh, Kevin J., 2007. "The return to retail and the performance of US banks," Journal of Banking & Finance, Elsevier, vol. 31(4), pages 1101-1133, April.
    2. M. Nur Rianto Al Arif & Tara Bilqis Awwaliyah, 2019. "Market Share, Concentration Ratio and Profitability: Evidence from Indonesian Islamic Banking Industry," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 8(2), pages 189-201.
    3. Căpraru Bogdan & Ihnatov Iulian, 2015. "Determinants Of Bank’s Profitability In EU15," Scientific Annals of Economics and Business, Sciendo, vol. 62(1), pages 93-101, April.
    4. Pasiouras, Fotios & Kosmidou, Kyriaki, 2007. "Factors influencing the profitability of domestic and foreign commercial banks in the European Union," Research in International Business and Finance, Elsevier, vol. 21(2), pages 222-237, June.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mouna Rekik & Maha Kalai, 2018. "Determinants of banks’ profitability and efficiency: Empirical evidence from a sample of Banking Systems," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(9), pages 5-23, May.
    2. Maria Elisabete Duarte Neves & Maria Do Castelo Gouveia & Catarina Alexandra Neves Proença, 2020. "European Bank’s Performance and Efficiency," JRFM, MDPI, vol. 13(4), pages 1-17, April.
    3. Fadzlan Sufian & Muhamed Zulkhibri, 2015. "The Nexus between Economic Freedom and Islamic Bank Profitability in the MENA Banking Sectors," Global Business Review, International Management Institute, vol. 16(5_suppl), pages 58-81, October.
    4. Sufian, Fadzlan & Habibullah, Muzafar Shah, 2010. "Does economic freedom fosters banks’ performance? Panel evidence from Malaysia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 6(2), pages 77-91.
    5. Kaan Kutlay & Okan Veli Safakli, 2018. "The Relationship between Bank Profitability and Micro Variables with Particular Emphasis on Bank Type: The Case of Northern Cyprus," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(1), pages 26-40, January.
    6. Fadzlan Sufian & Muzafar Habibullah, 2009. "Bank specific and macroeconomic determinants of bank profitability: Empirical evidence from the China banking sector," Frontiers of Economics in China, Springer;Higher Education Press, vol. 4(2), pages 274-291, June.
    7. Laila Al-Harthy & Revenio Jalagat, Jr. & Karima Sayari, 2021. "Determinants of bank profitability during oil price decline: Evidence from selected banks in Oman," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(8), pages 200-217, December.
    8. Dietrich, Andreas & Hess, Kurt & Wanzenried, Gabrielle, 2014. "The good and bad news about the new liquidity rules of Basel III in Western European countries," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 13-25.
    9. Mehmet Sabri Topak & Nimet Hulya Talu, 2017. "Bank Specific and Macroeconomic Determinants of Bank Profitability: Evidence from Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 574-584.
    10. Almir ALIHODZIC, 2020. "Sensitivity of bank profitability to changing in certain internal and external variables: the case of Bosnia and Herzegovina," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 11, pages 182-202, December.
    11. du Toit, Elda & Cuba, Yolanda Z., 2018. "Cost and profit efficiency of listed South African banks pre and post the financial crisis," Research in International Business and Finance, Elsevier, vol. 45(C), pages 435-445.
    12. E Philip Davis & Dilruba Karim & Dennison Noel, 2020. "The Effects of Macroprudential Policy on Banks' Profitability," National Institute of Economic and Social Research (NIESR) Discussion Papers 514, National Institute of Economic and Social Research.
    13. Radulescu Magdalena & Banica Logica & Sinisi Crenguta Ileana, 2018. "Developments of the CEE banking sectors after the financial crisis," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 12(1), pages 851-863, May.
    14. Fadzlan Sufian & Muzafar Shah Habibullah, 2010. "Developments in the efficiency of the Thailand banking sector: a DEA approach," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 9(3), pages 226-245, September.
    15. Seyed Alireza Athari & Mahboubeh Bahreini, 2023. "The impact of external governance and regulatory settings on the profitability of Islamic banks: Evidence from Arab markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 2124-2147, April.
    16. González, Luis Otero & Razia, Alaa & Búa, Milagros Vivel & Sestayo, Rubén Lado, 2019. "Market structure, performance, and efficiency: Evidence from the MENA banking sector," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 84-101.
    17. Olufemi Adewale Aluko & Funso Tajudeen Kolapo & Patrick Olufemi Adeyeye & Patrick Olajide Oladele, 2019. "Impact of Financial Risks on the Profitability of Systematically Important Banks in Nigeria," Paradigm, , vol. 23(2), pages 117-129, December.
    18. Sufian, Fadzlan & Habibullah, Muzafar Shah, 2012. "Globalizations and bank performance in China," Research in International Business and Finance, Elsevier, vol. 26(2), pages 221-239.
    19. Youngkyung Ok & Jungmu Kim & Yuen Jung Park, 2019. "The Effect of Housing Prices on Bank Performance in Korea," Sustainability, MDPI, vol. 11(22), pages 1-14, November.
    20. Fadzlan Sufian & Mohamad Akbar Noor Mohamad Noor, 2012. "Determinants of Bank Performance in a Developing Economy," Global Business Review, International Management Institute, vol. 13(1), pages 1-23, February.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbk:journl:v:10:y:2021:i:2:p:39-56. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cbmgvme.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.