The Determinants of Commercial Bank Profitability In CEE Countries

Abstract

The aim of our paper is to identify key factors that affect the evolution of the banking profitability and to empirically evaluate the effects of different micro and macroeconomic elements that could affect the profitability of commercial banks from seven Central and Eastern European countries (Bulgaria, Czech Republic, Hungary, Lithuania, Latvia, Poland and Romania) during ten years (2003-2012). Our research is based on data provided by the Bureau Van Dijk database, the annual reports of the banks from our sample, the databases of the World Bank and ECB (Statistical Data Warehouse) and uses panel data estimation techniques. Our empirical research results show that the profitability of the sample banks is affected especially by the ratio of cost to income, loan loss reserves, GDP per capita growth and domestic bank credit to private sector, which is in line with our expectations as well as with the empirical results of the other researchers.

Keywords

• banks
• profitability
• determinants
• Central and Eastern European Countries
• panel data