Factors affecting bank profitability in Europe: An empirical investigation

The aim of this paper was to explore the relationship between bank-specific characteristics and profitability in European banking sector in order to determine the impact of internal factors on achieving high profitability. A regression analysis was done on an unbalanced panel dataset related to 28 European banks over the period of 2006-2015. The largest bank for any single country of the European Union was selected. Regression results show that capital ratio and size have positive impacts on bank profitability in Europe,; while higher asset quality results in lower profitability levels. Findings also suggest that banks with higher deposit ratio tend to be more profitable. The study provides interesting insights into the characteristics and practices of profitable banks in Europe. Few econometric studies have empirically explored the determinants of profitability in Europe banking sector so far, even though similar studies have been conducted in several developed countries.