Analyzing the Determinants of Banking Profitability in European Commercial Banks: Do COVID-19 Economic Support Measures Matter?

Florin Blaga, Bogdan Andrei Dumitrescu (), Ioana Duca, Ionel Leonida and Dalia Poleac
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Florin Blaga: Doctoral School of Finance, Faculty of Finance and Banking, Bucharest University of Economic Studies, 010961 Bucharest, Romania
Bogdan Andrei Dumitrescu: “Victor Slăvescu” Centre for Financial and Monetary Research, 050711 Bucharest, Romania
Ionel Leonida: “Victor Slăvescu” Centre for Financial and Monetary Research, 050711 Bucharest, Romania
Dalia Poleac: Faculty of Business Administration in Foreign Languages, Bucharest University of Economic Studies, 010961 Bucharest, Romania

Sustainability, 2024, vol. 16, issue 16, 1-16

Abstract: In this paper, we rely on a comprehensive dataset of European commercial banks from the ORBIS Database spanning from 2014 to 2022 and use an unconditional quantile regression to investigate the driving factors of profitability. By controlling for several bank-related factors, we aim to capture the influence of economic support measures on banking profitability as measured by the ROA. The major finding of the paper brings to light the negative impact of economic support measures on bank profitability, especially for banks associated with the lower and middle quantiles of the distribution of the ROA. This suggests that while government interventions are essential during economic downturns such as the COVID-19 pandemic, their impact on banking sector productivity is more complex. Indeed, when the government provides more intensive economic support in the form of direct subsidies, grants, or tax exemptions, it reduces the immediate dependence of economic agents on bank loans. If these entities receive funds directly from the government, their propensity to borrow from banks drastically decreases, resulting in a reduction in their interest income and other financial services.

Keywords: bank profitability; COVID-19 pandemic; economic support measures; quantile regression; ESG (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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