Abstract:
This paper has as premise the necessity for analysing the determinants of bank profitability in the context of the manifestation of strong interdependencies between the banking systems’ performance and the general economic and social climate. Within this framework there are identified several determinant factors, both internal (bank-specific) and external (industry-specific and macroeconomic) while their impact on bank profitability (estimated through ROA and ROE indicators) is analysed by processing, based on econometric methods, the data of 13 Western European countries for the period 2000-2011. Empirical results show the significant positive impact of economic growth and the significant negative influences of inflation and of the manifestation of the financial crisis on banks’ profitability. It is also found a profound negative impact of the internal factors such as bank size, capital adequacy ratio, expenses management and, especially, credit risk on bank profitability, which lead us to conclude that there are needed further efforts of the banks in Western European countries to improve the capital policy, to control better their expenses and to reduce the credit risk, first of all, by preventing the deterioration of the quality of their bank loan portfolio, but also by measures for reducing the existing NPLs.
