Some Unconventional Profitability Determinants on the Banking Sector in Bosnia and Herzegovina

Abstract

We examine factors that differentiate more profitable from less profitable banks in Bosnia and Herzegovina. We utilize some of the profitability measures as well as some independent variables that are not vastly explored in the existing literature. The study utilizes panel data linear regression with GLS random effects to observe the relationship between four bank profitability measures on one side and bank specific, macroeconomic and additional unexplored categorical variables on the other side. Our results suggest that lower bank profitability seems to be associated with higher operating expenses as share of total assets, higher bank concentrations, lower inflation rates, higher GDP growth rates and GDP per capita levels. We also find strong evidence that banks having foreign CEOs are more likely to be less profitable than banks with local CEOs, and some evidence that foreign owned banks seem to be less profitable than the locally owned ones, as well as that logo color choice seem to make profitability difference among banks. Bank profitability determinants on this banking market is a fairly unexplored area and should be explored more in the future research.