The basic purpose of the paper is to research determinants on profitability indicators of the banks in the European Union. Analysed bank profitability indicators considered as a standard are: the ...return on total bank assets (ROA) and return on total bank equity (ROE). The research model of bank profitability determinants is developed by analysing the systemically important, quoted banks in the European Union, in the 2007–2019 period, by using an adequate panel data analysis technique. The empirical evidence is in line with the initial assumptions: the efficiency of the banking firm, measured by the cost to income ratio and the non-performing loans ratio, has a significant influence on bank profitability, both on ROA and ROE. In the post-crisis period, banking firms ask for efficient cost management in achieving performance objectives. Additional important empirical results of research are the absence of impact of assets size and regulatory capital ratio on profitability indicators. The most important contribution of the paper is related to the sample definition, variable selection and explanatory power of the presented model in explaining global banking tendencies.
Purpose: Financial banking intermediaries are sensitive to changes in market interest rates. The volatility of market interest rates affects the level of bank net interest income and determines the ...bank interest rate policy. Banks are actively managing structural interest rate risks to mitigate the negative effects of changes in market interest rates. The post-crisis period is characterised by unconventional monetary policy, and one of the basic objectives of the monetary instrument is a negative interest rate policy. This paper researches the effects on the bank net interest income structure with an impact on bank performance indicators. The basic research hypothesis is that during the financial crisis and a negative interest rate policy, the movement of bank interest income does not converge compared to a bank interest expense.Methodology: According to the characteristics of the dataset, which includes 32 listed banks from Great Britain, Switzerland and the European Union for the period 2002-2019, panel data analysis is applied. To analyse the effect of the interest rate level on total interest income and total interest expense, we formed two models. Fixed-effects models were used for parameter estimation. Results: A bank interest expense is more sensitive to unconventional macroeconomic policy than bank interest income. Conclusion: The traditional interest earning customer related business can enable banks to stabilise the bank performance indicator during market disruption.
The main objective of this paper is to explore the adjustment of bank business activities to new regulatory capital requests using panel data analyses of the European banking system. The research ...hypothesis assumes that the increase in capital requirements affects the banks' balance sheet adjustment and bank lending to the non-financial sector. The banks can maintain the higher regulatory capital ratio by increasing the volume of share capital or by decreasing the risk-weighted assets and bank lending activities. The high equity premium upon a new equity issue due to asymmetric information about the bank's net worth discourages the current shareholder to issue additional capital, which has resulted in bank lending constraints and has increased non-risk bank assets. Banks' response to new capital requirements can announce a long-term negative impact to real economy and bank depending borrowers. The model of empirical analysis of the banking sector adjustment to new capital requirements will be demonstrated on the sample of publicly listed banking firms in the European Union in the period 2000-2016 using dynamic panel-data estimation with the Generalized Method of Moments (GMM) in one-step.
International Financial Reporting Standard 9 (IFRS 9) introduced new principles of classification and measurement of financial instruments, financial assets impairment management, and hedging ...accounting. In initial recognition and accounting classification of financial assets in amortized costs category, fair value through other comprehensive income, or fair value through profit or loss, IFRS 9 implemented new solely payments of principal and interest (SPPI) test and related benchmark test. Bank landing policy has to take in consideration the IFRS 9 principles of initial recognition of loan contract. In case that the loan contract has terms that give cash flows like solely payments of principal and interest, than the financial assets is consistent with the base landing agreement and can be measured by amortized costs. Otherwise, the loan has to be fair valued with influence on bank structural risk position. Bank landing policy has to be adjusted with banking book management to avoid structural risk hedging costs. If contractual cash flows are not solely payments of principal and interest it is necessary to make a business model test. Business lines in banking firm have to be introduced to IFRS 9 request in product supply definition that is in compliance with bank risk policy.
Almost all the representatives of the modern financial science use mathematical, statistical and physical tools in practical analyses, theoretical evidences and conclusions. Analytical forms and ...derived results are based on assumptions and aspects of the financial markets. Market assumptions are important in structuring financial models, as well as in the empirical application of the results. Complexity of the economic system in a multitude of economic and non-economic relations is evident. More simplified market structure could be a cause of the insufficient reliability in regard of financial models contribution. Needs for discovering economic market and searching for connections in changes of the market category result with the new theoretical approaches in financial science, where occurrence and statistically assumed uncertainty are being replaced by the principals of determinism, chaos and theory of complexity. The importance and empirical acceptance of the new theoretical approaches will be validated with time, and its justification, verity, expediency and applicability should be implemented within reality. Reprinted by permission of the Croatian Economics Association
The research objective of this study is twofold. It aims to provide a synthesis of relevant empirical researches on the determinants of commercial banks’ profitability and to establish empirical ...verification of profitability determinants of banks in the Republic of Croatia using an econometric method of dynamic panel analysis. The empirical analysis is carried out on a data sample of 28 commercial banks in the period 2003-2008 which continuously refers to more than 95 % of assets of the overall banking intermediation. Return on assets (ROA) is profitability indicator used in the analysis. The presented research results and their economic interpretation may serve as a valuable foundation for the general assessment of commercial bank management in Croatia as well as for identifying several sources of potential improvement and impairment of their financial performance in the future. Thus, corrective actions could be planned and implemented in advance.
The basic purpose of the paper is to research determinants on profitability indicators of the banks in the European Union. Analysed bank profitability indicators considered as a standard are: the ...return on total bank assets (ROA) and return on total bank equity (ROE). The research model of bank profitability determinants is developed by analysing the systemically important, quoted banks in the European Union, in the 2007-2019 period, by using an adequate panel data analysis technique. The empirical evidence is in line with the initial assumptions: the efficiency of the banking firm, measured by the cost to income ratio and the non-performing loans ratio, has a significant influence on bank profitability, both on ROA and ROE. In the postcrisis period, banking firms ask for efficient cost management in achieving performance objectives. Additional important empirical results of research are the absence of impact of assets size and regulatory capital ratio on profitability indicators. The most important contribution of the paper is related to the sample definition, variable selection and explanatory power of the presented model in explaining global banking tendencies.
The basic purpose of the paper is to research determinants on profitability indicators of the banks in the European Union. Analysed bank profitability indicators considered as a standard are: the ...return on total bank assets (ROA) and return on total bank equity (ROE). The research model of bank profitability determinants is developed by analysing the systemically important, quoted banks in the European Union, in the 2007-2019 period, by using an adequate panel data analysis technique. The empirical evidence is in line with the initial assumptions: the efficiency of the banking firm, measured by the cost to income ratio and the non-performing loans ratio, has a significant influence on bank profitability, both on ROA and ROE. In the post-crisis period, banking firms ask for efficient cost management in achieving performance objectives. Additional important empirical results of research are the absence of impact of assets size and regulatory capital ratio on profitability indicators. The most important contribution of the paper is related to the sample definition, variable selection and explanatory power of the presented model in explaining global banking tendencies.
The main research objective of the paper is to find the determinants of the price to book ratios in the European banking sector. Since the outbreak of the last global financial crisis, the price to ...book ratios of most European banks have remained unexpectedly low as a consequence of the macroeconomic environment, regulatory measures and banks ' business model structures. The dynamic panel analyses is done on the sample of 23 European Union largest public quoted banks for 2002-2017 period. The empirical evidence shows that the price to book ratios of European banks is directly related to the macroeconomic environment and prudential measures, but there are significant differences at individual bank level in terms of activity structure and business performance indicators. The results of the paper are used as a basis for recommendations on management objectives enhancing the value of banking firms, as well as promoting a regulatory dialogue on optimizing a prudential framework structure.
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