Determinants of bank profitability during the European debt crisis : evidence from Malta, Netherlands, Greece, Poland and Croatia

Abstract

Banks in Europe have been undergoing significant challenges due to the ongoing Euro Debt Crisis. In order to mitigate the negative spillovers on the banking system, it is crucial to trace the major role of macroeconomic, industry and micro level changes on bank profitability.

The aim of this dissertation is to assess the significance and relationship of several determinants on bank profitability during the ongoing Euro Debt Crisis in Malta, Netherlands, Greece, Poland and Croatia. A multiple linear regression analysis is built for each country on a quarterly basis for the period 2009 till 2016. The bank level variables are capital, liquidity, operating expenses and the interest rate margin while the macroeconomic variables are gross domestic product and the exchange rate.

The findings from this study suggest that operating expenses, interest rate and gross domestic product are significant in the majority of the countries, while liquidity and capital are only significant in one and two countries respectively. The exchange rate was only significant in the case of Poland and deemed insignificant in the case of Croatia. Moreover, Malta and Greece challenge the anticipated signs of the interest rate and operating expenses variables.

Overall, since the impact and significance of the variables varies across different countries, it is suggested that the process of establishing common standards of regulation in the European Union should not be one of total uniformity as a number of stakeholders would benefit from minor adjustments in certain aspects of bank structure.