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Profitability Drivers in European Banks: Analyzing Internal and External Factors in the Post-2009 Financial Landscape

Author

Listed:
  • Suzana Laporšek

    (Faculty of Management, University of Primorska, Izolska vrata 2, SI-6000 Koper, Slovenia)

  • Barbara Švagan

    (Faculty of Management, University of Primorska, Izolska vrata 2, SI-6000 Koper, Slovenia)

  • Mojca Stubelj

    (Faculty of Health Sciences, University of Primorska, Polje 42, SI-6310 Izola, Slovenia)

  • Igor Stubelj

    (Faculty of Management, University of Primorska, Izolska vrata 2, SI-6000 Koper, Slovenia)

Abstract

The paper examines the key determinants of European banks’ profitability by analyzing the return on assets (ROA), return on equity (ROE), net interest margin (NIM), and the risk-adjusted measures of profitability, RAROAA and RAROAE, across 34 European countries during the period from 2013 to 2018—a time characterized by economic recovery and significant regulatory reforms, including the implementation of Basel III standards. Using the Generalized Method of Moments (GMM) approach and data of 3076 European banks, the research addresses the complex interplay between internal (bank-specific) factors and external factors, including macroeconomic and industry-specific factors. The results show that profitability is positively associated with a higher capital adequacy, liquidity risk, and income diversification, but not for risk-adjusted profitability ratios. Credit risk, management efficiency, and excessive size have a negative effect on all studied profitability measures. Macroeconomic conditions, in particular, GDP growth and inflation, also have a significant impact on profitability. The findings offer valuable insights for policymakers, regulators, and financial institutions aiming to enhance profitability while maintaining the stability of the European banking sector.

Suggested Citation

  • Suzana Laporšek & Barbara Švagan & Mojca Stubelj & Igor Stubelj, 2024. "Profitability Drivers in European Banks: Analyzing Internal and External Factors in the Post-2009 Financial Landscape," Risks, MDPI, vol. 13(1), pages 1-20, December.
    • Handle: RePEc:gam:jrisks:v:13:y:2024:i:1:p:2-:d:1555402
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    References listed on IDEAS

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    Cited by:

    1. Massimo Arnone & Alberto Costantiello & Angelo Leogrande, 2025. "Analyzing Risk Exposure Determinants in European Banking: A Regulatory Perspective," Working Papers hal-04865226, HAL.
    2. Ouabou Nabie & Mahamadou Diarra, 2026. "Effects of Fiscal Policy on Banking Profitability in West African Economic and Monetary Union Countries," African Development Review, African Development Bank, vol. 38(1), March.
    3. repec:osf:osfxxx:2u4jb_v1 is not listed on IDEAS

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