Profitability Management: How Can Macro and Microeconomic Determinants Influence Commercial Bank Profitability in the EU-27?

This paper examines the role of macro and microeconomic determinants in bank profitability in the EU-27. To identify how defined variables can affect profitability, a regression model was constructed with a multicollinearity condition, with multicollinearity below the defined value. Data were collec...

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Bibliographic Details
Published in:TEM Journal 2022-08, Vol.11 (3), p.1300-1307
Main Authors: Jílková, Petra, Kotěšovcová, Jana
Format: Article
Language:English
Subjects:
Bank deposits
Banking industry
Commercial banks
Cost control
Dependent variables
Economic development
Economic growth
Equity
Funding
GDP
Gross Domestic Product
ICT Information and Communications Technologies
Interest rates
Liquid assets
Literature reviews
Loans
Loss reserves
Macroeconomics
Micro-Economics
Portfolio management
Profitability
Profits
Regression models
Return on assets
Return on equity
Statistical analysis
Statistical models
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Summary:This paper examines the role of macro and microeconomic determinants in bank profitability in the EU-27. To identify how defined variables can affect profitability, a regression model was constructed with a multicollinearity condition, with multicollinearity below the defined value. Data were collected based on 3,257 bank balance sheets and the World Bank and ORBIS Bank Focus databases. Based on a literature review, we have stated that the bank sector profitability is measured by Net Interest Margin (NIM), Return on Average Assets (ROAA), and Return on Average Equity (ROAE) as dependent variables. The statistical model showed no acceptable solution for Return on Average Equity. Four allowable solutions were found for the profitability of average assets and six solutions for net interest margin. Lastly, the results indicate a clear effect of rising inflation on increasing bank interest rates, and therefore higher interest margins. A healthy economy, also characterized by a growing GDP rate, also positively affects the interest margin.
ISSN:2217-8309
2217-8333
DOI:10.18421/TEM113-39