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Determinants of Banking Profitability through ROA and ROE: A Panel Data Approach

Author

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  • Nina Sinițîn

    (“1st of December 1918†University of Alba Iulia)

  • Adela Socol

    (“1st of December 1918†University of Alba Iulia)

Abstract

Empirical review of literature on banks’ profitability suggests many determinants of banking profitability (measured through ROA Return on Assets and Return on Equity ROE, the main popular indicators of bank performance), from which we focus on GDP growth, Inflation, Loans/deposits ratio and Bank capital/total assets ratio. This paper intends to find if there is any significant relationship between ROA or ROE and these mentioned independent variables. We use Ordinary Least Squares OLS method with robust standard errors, consistent with panel-specific autocorrelation and heteroskedasticity. Our study is based on a panel database including 13 European Union countries over the period of 18 years ranging from 2000 to 2017. The empirical results reveal that there is a positive and a significant relationship between ROA or ROE and GDP growth, while the rest of the independent variables have a lesser influence on ROA or ROE.

Suggested Citation

  • Nina Sinițîn & Adela Socol, 2020. "Determinants of Banking Profitability through ROA and ROE: A Panel Data Approach," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 1037-1043, August.
    • Handle: RePEc:ovi:oviste:v:xx:y:2020:i:1:p:1037-1043
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    References listed on IDEAS

    as
    1. Olena Havrylchyk & Emilia Jurzyk, 2011. "Profitability of foreign banks in Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(3), pages 443-472, July.
    2. 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.
    3. Sehrish Gul & Faiza Irshad & Khalid Zaman, 2011. "Factors Affecting Bank Profitability in Pakistan," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 14(39), pages 61-87, March.
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    More about this item

    Keywords

    ROA; ROE; Banking profitability; European Union;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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