Domestic-Political Risk, Global Economic Policy Uncertainty, and Banks’ Profitability: Evidence from Ukrainian Banks

Abstract

This study specifically examines the effects of domestic-political risk and global economic policy uncertainty factors on the profitability of Ukrainian banks during the 2005-2015 period. The empirical results underscore that the domestic-political stability and global economic policy uncertainty have significant positive and negative effect on Ukrainian banks' profitability, respectively. Results suggest that a rise of Ukrainian banks’ profitability depends significantly on decreasing domestic-political and global risk levels. Likewise, the results of traditional determinants indicate that the profitability of Ukrainian banks is shaped by the bank and industry-specific determinants. The results are robust and consistent when alternative model specifications are conducted. The findings of this study have important policy implications for policymakers, banks' managers, and analysts.

Keywords: Political risk; global economic policy uncertainty; Ukrainian banks; Profitability

JEL Classification: C23; G18; G21