"An Empirical Analysis Of The Determinants Of Bank Profitability In Romania "

Abstract

Our paper aims to investigate the factors that have an influence upon the profitability of Romanian commercial banks, between 2003 and 2011. The results of our study show that Romanian banks' profitability is influenced by both bank-specific factors and changes in the external environment. In the case of bank-specific factors, the results of our study reflect that bank profitability is significantly influenced by asset quality, management quality and banking liquidity. Among external factors, it turns out that banking concentration and economic growth rate have an important impact on bank profitability. Introduction The analysis of the main factors that impact on bank profitability has drawn the attention of the decision makers and of the researchers as the banking sector is of vital importance for developing a national economy and establishing the financial stability. Moreover, the serious implications of the recent international financial crisis on the banking sector bring back to the center of attention the evaluation of the bank profitability determinants. Knowing them represents an interest not only to the regulatory and supervisory authorities, bank managers, but also to their clients. In Romania, the financial system is focused on banks, which have a crucial role in financing the real economy and ensuring the financial stability. In this context, ensuring a healthy, stable and highly effective banking sector is of major importance to deal with long term economic growth and economic and financial stability. In the latest years, which preceded the current world economic crisis, amid significant structural, institutional and legislative transformations, the Romanian banking sector has registered an extremely rapid growth, with major impact upon bank profitability and efficiency. Following a highly accelerated dynamic of loans, especially to households, a diversity of banking operations, a range of banking products and services, the banks have recorded a growing income, with positive and significant impact upon the profitability indicators. In the context of the recent global economic crisis, the serious decrease of both supply and demand for loans, the significant deterioration of credit portfolio quality, the banking risk amplifications or the provision increase have considerably affected the Romanian banks profitability. In this context, by using a balanced bank level panel data, the objective of our research is to stress out the impact that bank-specific, industry-specific and macroeconomic factors have upon the profitability of the commercial banks that operate in Romania.