What Determines the Profitability of Banks? Evidence from Spain
Accounting & Finance, 53, pp. 561-586
Posted: 2 Jun 2012 Last revised: 4 May 2013
Date Written: January 6, 2012
This paper empirically analyzes the factors that determine the profitability of Spanish banks for the period of 1999-2009. We conclude that the high bank profitability during these years is associated with a large percentage of loans in total assets, a high proportion of customer deposits, good efficiency, and a low doubtful assets ratio. In addition, higher capital ratios also increase the bank’s return, but only when return on assets (ROA) is used as the profitability measure. We find no evidence of either economies or diseconomies of scale or scope in the Spanish banking sector. Finally, our study reveals differences in the performance of commercial and savings banks.
Keywords: Bank profitability, Commercial banks, Savings banks, European banking system
JEL Classification: G21, G32, L11
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