Challenges of Banking Profitability in Eurozone Countries: Analysis of Specific and Macroeconomic Factors

Esat A. Durguti


Numerous factors affect the rate of return that a financial institution earns.
Some of these factors include external forces that shape earnings performance
and internal elements found in each financial institution. Policy implications
are determined by the type of explanation and should be taken seriously. This
paper classifies determinants of bank profitability as well as reviews existing
literature on bank performance. The second section of this study quantifies how
external factors and internal determinants have influenced the profitability of
EU banks. This paper constructs fixed-effect models and Ordinary Least Squares
(OLS), which sheds new light on understanding various factors influencing how
the EU banking industry performs. The observation period was from 2012 to
2019, and the findings revealed that EU bank profitability is influenced by both
external macroeconomic environment and management decisions. The results
of this study suggest that equity to assets ratio (EA), Gap ratio, and GDP have a
positive impact on bank profitability, while the loan to assets ratio (LA) and the
provision for loan losses to total loans ratio (PLL/TL) hurt EU bank profitability.
The empirical findings are consistent with the expected results, although, they
are different from those of studies that investigated the structure-performance
relationship of EU banks because they found that market share and concentration
have a positive effect on bank profitability.


bank profitability, regression analysis, panel data, EU countries

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