Business Model Contributions to Bank Profit Performance: A Machine Learning Approach

F. Bolivar, Miguel Duran and Ana Lozano-Vivas

Papers from arXiv.org

Abstract: This paper analyzes the relation between bank profit performance and business models. Using a machine learning-based approach, we propose a methodological strategy in which balance sheet components' contributions to profitability are the identification instruments of business models. We apply this strategy to the European Union banking system from 1997 to 2021. Our main findings indicate that the standard retail-oriented business model is the profile that performs best in terms of profitability, whereas adopting a non-specialized business profile is a strategic decision that leads to poor profitability. Additionally, our findings suggest that the effect of high capital ratios on profitability depends on the business profile. The contributions of business models to profitability decreased during the Great Recession. Although the situation showed signs of improvement afterward, the European Union banking system's ability to yield returns is still problematic in the post-crisis period, even for the best-performing group.

Date: 2024-01
New Economics Papers: this item is included in nep-ban, nep-big, nep-cmp, nep-eff and nep-eur
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Published in Research in International Business and Finance 64 (2023)

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Journal Article: Business model contributions to bank profit performance: A machine learning approach (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2401.12334

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