Determinants of bank profitability : an empirical analysis of the European banking sector, 2019 – 2023

Abstract

This research examines the factors that influenced bank profitability in the European banking industry between 2019 and 2023, concentrating on fifty-eight significant banks as a sample. The effects of several factors on profitability and Tangible Book Value (TBV) are examined, including net interest income, loan loss provisions, total loans, total investments, customer and bank deposits, and non-performing loans. This is done by using panel data models and a multiple linear regression. The findings show that while loan loss provisions have a negative effect on both metrics, net interest income has a significant positive influence on profitability and TBV. The total amount of loans has a mixed impact, negatively affecting profitability while enhancing TBV. Unexpectedly, but not statistically significantly, there is a positive correlation between non-performing loans and profitability. These results are partially consistent with findings from previous studies, showing both predicted and unexpected dynamics in bank profitability during this period.