Determinants of Profitability of Commercial Banks

Abstract

The paper is devoted to the identification of key factors which influence commercial banks'economic profit. The data of 50 Russian banks from 2011 to 2020 are analysed. Among the determinants of banks'profitability, the factors of operational, financial, and macroeconomic profile are investigated with the use the system generalized method of moments (GMM). The novelty of the study concerns the expansion of the existing list of determinants which influence the banks'profitability with additional factors, such as the level of service, the type of business model, insolvency risk. Also, the paper implies the use of spread of Economic Value Added as a measure of banks'profitability, which relates to rather new and less studied economic approach in the existing literature compared with traditional ROA and ROE indicators. It is important to establish that there are no actual studies of Russian banking sector in the existing literature. The obtained results of the current study of Russian commercial banks can be used for both internal and external purposes.