The Determinants of Bank Profitability in Romania
The Determinants of Bank Profitability in Romania

Summary/Abstract: The profitability of a banking sector is a mirrored image of how banks use their resources to achieve their objectives. The determinants of bank profitability have attracted the interest of academic research, as well as that of the financial markets and bank supervisors. The main objective of this paper is to identify the bank specific and macroeconomic factors that affect the profitability of all commercial banks operating in Romania, through adequate empirical analysis. The econometric model used is that of multiple linear regression where as the dependent variable used as proxy for bank performance is obtained the Return on Equity ratio and as independent variables are chosen a number of macroeconomic indicators and indicators of assets and liabilities of the Romanian banking system. The results of the econometric model showed that there is a direct statistically significant relationship between ROE as determinant of bank profitability and factors such as bank credit to the private sector as percent of GDP, real interest rate and the inflation rate. On the other hand, the results of the econometric model showed that there is an indirect statistically significant correlation between the level of ROE and the indicators of bank assets as percent of GDP and the unemployment rate. The Romanian banking system has prudent indicators of solvency, profitability and balance sheet structure better than the European average, but the quality of assets is still discordant, due to the rate of non-performing loans and loans with restructuring measures, which, although decreased sharply, remain above EU average levels.

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