Breaking the Bank? A Probabilistic Assessment of Euro Area Bank Profitability

Selim Elekdag, Sheheryar Malik and Srobona Mitra

Journal of Banking & Finance, 2020, vol. 120, issue C

Abstract: This paper explores the determinants of profitability across large euro area banks using an approach based on conditional profitability distributions. The most reliable determinants of bank profitability are real GDP growth and the nonperforming loan (NPL) ratio. The estimated conditional distributions reveal that, while higher growth would raise profits on average, a large swath of banks would most likely continue to struggle even amid a strong economic recovery. Therefore, for some banks, a determined reduction in NPLs combined with cost efficiency improvements and customized changes to their business models appears to be the most promising strategy for durably raising profitability.

Keywords: Bank profitability; Quantile regressions; Conditional distributions (search for similar items in EconPapers)
JEL-codes: C32 E30 G01 G21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:120:y:2020:i:c:s0378426620302119

DOI: 10.1016/j.jbankfin.2020.105949

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