Breaking the Bank? A Probabilistic Assessment of Euro Area Bank Profitability
39 Pages Posted: 22 Jan 2020
Date Written: November 2019
This paper explores the determinants of profitability across large euro area banks using a novel approach based on conditional profitability distributions. Real GDP growth and the NPL ratio are shown to be the most reliable determinants of bank profitability. However, the estimated conditional distributions reveal that, while higher growth would raise profits on average, a large swath of banks would most likely continue to struggle even amid a strong economic recovery. Therefore, for some banks, a determined reduction in NPLs combined with cost efficiency improvements and customized changes to their business models appears to be the most promising strategy for durably raising profitability.
Keywords: Financial crises, Central banks, Financial services, Banking systems, Macroprudential policies and financial stability, Bank profitability, quantile regressions, conditional distributions, WP, ROA, NPL, profitability, quantile, roe
JEL Classification: C32, E30, G01, G21, E01, E63, O4, K2
Suggested Citation: Suggested Citation