DETERMINANTS OF BANKS PROFITABILITY IN THE REPUBLIC OF NORTH MACEDONIA
DETERMINANTS OF BANKS PROFITABILITY IN THE REPUBLIC OF NORTH MACEDONIA

Summary/Abstract: Having into consideration the importance of the profitability of the commercial banks and their role on the economy of the developing countries, this study tries to investigate empirically the bank’s profitability and the main determinants that effect the profitability of the banks operating in the Republic of North Macedonia for the last two decades. Thus, in addition, this paper tries to underline the main determinants that influence the profitability of banks operating in the Republic of North Macedonia. In this regard, the study by utilizing secondary quarterly data for the time period 2004q1 – 2022q4 and employing VECM technique, it investigates the short-run and long-run relationship of the determinants of the profitability of the banks of the Republic of North Macedonia. From the VECM results, it can be noted that from the internal factors, deposit growth and level of non-performing loans have a strong positive long-run effect on profitability, while loan growth has a negative impact on the ROA of the Macedonian banking sector. Furthermore, from the external factors, only inflation seems to have a significant long-run effect on the profitability of the banks in the Republic of North Macedonia for the time frame 2005q1 – 2022q4. Further recommendations are given with regard to internal and external determinants of the profitability of the banks in the Republic of North Macedonia, in the scope of improving and strengthening the bank profitability, resilience and enhancing sustainable growth.

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