Banking Industry Sustainable Growth Rate under Risk: Empirical Study of the Banking Industry in Western Balkan Countries

This study investigates the determinants of sustainable growth in the banking sector of the Western Balkan countries within a context of heightened regulatory pressure, financial transformation, and evolving risk profiles. While existing empirical evidence on bank sustainable growth largely relies on outdated datasets or focuses on advanced banking systems, evidence from emerging European markets remains limited. Using an unbalanced panel dataset of 152 commercial banks operating in Albania, Croatia, Kosovo, Bosnia and Herzegovina, North Macedonia, Montenegro, and Serbia over the period 2013-2022 (1,064 bank-year observations), the study employs panel econometric techniques to examine the role of operational efficiency, profitability, capital structure, balance-sheet growth, liquidity and credit risk, and risk-taking behavior in shaping banks’ sustainable growth capacity. Fixed-effects estimations are applied to control for unobserved bank-specific heterogeneity and common time effects, with robust standard errors clustered at the bank level. The results reveal that sustainable bank growth is primarily driven by internal performance and strategic choices. Operational efficiency, profitability, Financial Leverage, and controlled risk-taking exhibit a positive and statistically significant relationship with sustainable growth, whereas balance-sheet expansion, asset risk intensity, liquidity, and credit risk indicators do not exert a robust direct effect. Macroeconomic conditions play a limited role once bank-specific dynamics are taken into account. By adopting a thematic risk-channel approach and incorporating recent data, this study contributes to the banking and financial stability literature by offering new insights into how banks in emerging European markets balance growth objectives with long-term resilience. The findings provide relevant implications for bank managers and policymakers in designing strategies that support sustainable growth without compromising financial stability.