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Determinants of Banking Profitability through ROA and ROE: A Panel Data Approach

Nina Sinițîn () and Adela Socol ()
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Nina Sinițîn: “1st of December 1918†University of Alba Iulia
Adela Socol: “1st of December 1918†University of Alba Iulia

Ovidius University Annals, Economic Sciences Series, 2020, vol. XX, issue 1, 1037-1043

Abstract: Empirical review of literature on banks’ profitability suggests many determinants of banking profitability (measured through ROA Return on Assets and Return on Equity ROE, the main popular indicators of bank performance), from which we focus on GDP growth, Inflation, Loans/deposits ratio and Bank capital/total assets ratio. This paper intends to find if there is any significant relationship between ROA or ROE and these mentioned independent variables. We use Ordinary Least Squares OLS method with robust standard errors, consistent with panel-specific autocorrelation and heteroskedasticity. Our study is based on a panel database including 13 European Union countries over the period of 18 years ranging from 2000 to 2017. The empirical results reveal that there is a positive and a significant relationship between ROA or ROE and GDP growth, while the rest of the independent variables have a lesser influence on ROA or ROE.

Keywords: ROA; ROE; Banking profitability; European Union (search for similar items in EconPapers)
JEL-codes: C23 G21 F62 (search for similar items in EconPapers)
Date: 2020
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