Factors Influencing Bank Profitability of Czech Banks and Their International Parent Companies
The goal of this paper is to specify factors influencing
the profitability of selected banks. Next, a model will be created to
help establish variables that have a demonstrable influence on the
development of the selected banks' profitability ratios. Czech banks
and their international parent companies were selected for analyzing
profitability. Banks categorized as large banks (according to the
Czech National Bank's system, which ranks banks according to
balance sheet total) were selected to represent the Czech banks. Two
ratios, the return on assets ratio (ROA) and the return on equity ratio
(ROE) are used to assess bank profitability. Six endogenous and four
external indicators were selected from among other factors that
influence bank profitability. The data analyzed were for 2001–2013.
First, correlation analysis, which was supposed to eliminate
correlated values, was conducted. A large number of correlated
values were established on the basis of this analysis. The strongly
correlated values were omitted. Despite this, the subsequent
regression analysis of profitability for the individual banks that were
selected did not confirm that the selected variables influenced their
profitability. The studied factors' influence on bank profitability was
demonstrated only for Ceskoslovenska Obchodni Banka and Société
Générale using regression analysis. For Československa Obchodni
Banka, it was demonstrated that inflation level and the amount of the
central bank's interest rate influenced the return on assets ratio and
that capital adequacy and market concentration influenced the return
on equity ratio for Société Générale.
[1] M. Abbreu, V. Mendes, “Commercial Bank Interest Margins and
Profitability: Evidence for Some EU Countries,” CISEP No. 830, 2002.
[2] U. Albertazzi, L. Gambacorta, “Bank Profitability and Taxation,”
Journal of Banking & Finance, vol. 44, no. 11, pp. 2801-2810, 2010.
[3] Bankscope, World banking information source. Bureau Van Dijk, 2013.
[4] J. A. Bikker, H. Hu, “Cyclical Patterns in Profits, Provisioning and
Lending of Banks,” DNB Staff Reports 2002, No. 86.
[5] P. Bourke, “Concentration and other determinants of bank profitability
in Europe, North America and Australia,” Journal of Banking &
Finance, vol. 13, no. 1, pp. 65-79, 1989.
[6] J. Černohorský, “The Integration of Credit Markets,” in Proc. of 7th
International Scientific Conference on Managing and Modelling of
Financial Risks, Ostrava, 2014, pp. 127–135.
[7] J. Černohorský, V. Prokop, “The Relationship of Concentration and
Profitability in Banking Markets,” in Proc. 15th International Conf. on
Finance and Banking, Prague, 2015, to be published.
[8] L. Černohorská, J. Černohorský, “The Criticism of Basel II Based on
Credit Risk Modelling,” in Proc. of International Multidisciplinary
Scientific Conferences on Social Sciences & Arts, Albena, 2014, pp.
721–728.
[9] A. Demirgüç-Kunt, H. Huizinga, “Determinants of Commercial Bank
Interest Margins and Profitability: Some International Evidence,” What
World Bank Economic Review, vol. 13, no. 2, pp. 379-408, 1999.
[10] A. Dietrich, G. Wanzenried, “Determinants of bank profitability before
and during the crisis: Evidence from Switzerland,” Journal of
International Financial Markets, Institutions & Money, vol. 21, no.3, pp.
307-327, 2011.
[11] Eurostat: Your key to European statistic, Eurostat. Retrieved on July 17,
2015, from http://ec.europa.eu/eurostat/web/euro-indicators/peeis
[12] T. Fišeoráv, P. Teplý, D. Tripe, “The Performance of Foreign-Owned
Banks in Host Country Economies,” Prague Economic Papers, 2015.
[13] M. J. Flannery, “Market Interest Rates and Commercial Bank
Profitability: An Empirical Investigation,” Journal of the American
Finance Association, vol. 36, no. 5, pp. 1085-1101, 1981.
[14] P. Molyneux, J. Thorton, “Determinants of European bank profitability:
A note,” Journal of Banking & Finance, vol. 16, no. 6, s. 1173-1178,
1992.
[15] S. Polouček, D. Stavárek, Efficiency and Profitability in the Banking
Sector. Houndmills: Palgrave Macmillan, 2004, pp. 75-135.
[16] J. Revell, Inflation and Financial Institutions. London: Financial Times,
1979.
[17] B. K. Short, “The relation between commercial bank profit rates and
banking concentration in Canada, Western Europe and Japan,” Journal
of Banking and Finance, vol. 3, no. 3, pp. 209–219, 1979.
[18] M. Smirlock, “Evidence on the (Non) Relationship between
Concentration and Profitability in Banking,” Journal of Money, Credit
and Banking, vol. 17, no. 1, pp. 69-83, 1985.
[19] CH. K. Staikouras, G. E. Wood, “The Determinants of European Bank
Profitability,” International Business & Economics Research, vol. 3, no.
6, pp. 57-68, 2004.
[20] P. Vodová, “Liquid Assets in Banking: What Matters in the Visegrad
Countries?” E+M Eonomics and Management, vol. 16, no. 3, 2013.
[21] R. S. Witte, J. S. Witte, Statistics. Wiley, 2009.
[1] M. Abbreu, V. Mendes, “Commercial Bank Interest Margins and
Profitability: Evidence for Some EU Countries,” CISEP No. 830, 2002.
[2] U. Albertazzi, L. Gambacorta, “Bank Profitability and Taxation,”
Journal of Banking & Finance, vol. 44, no. 11, pp. 2801-2810, 2010.
[3] Bankscope, World banking information source. Bureau Van Dijk, 2013.
[4] J. A. Bikker, H. Hu, “Cyclical Patterns in Profits, Provisioning and
Lending of Banks,” DNB Staff Reports 2002, No. 86.
[5] P. Bourke, “Concentration and other determinants of bank profitability
in Europe, North America and Australia,” Journal of Banking &
Finance, vol. 13, no. 1, pp. 65-79, 1989.
[6] J. Černohorský, “The Integration of Credit Markets,” in Proc. of 7th
International Scientific Conference on Managing and Modelling of
Financial Risks, Ostrava, 2014, pp. 127–135.
[7] J. Černohorský, V. Prokop, “The Relationship of Concentration and
Profitability in Banking Markets,” in Proc. 15th International Conf. on
Finance and Banking, Prague, 2015, to be published.
[8] L. Černohorská, J. Černohorský, “The Criticism of Basel II Based on
Credit Risk Modelling,” in Proc. of International Multidisciplinary
Scientific Conferences on Social Sciences & Arts, Albena, 2014, pp.
721–728.
[9] A. Demirgüç-Kunt, H. Huizinga, “Determinants of Commercial Bank
Interest Margins and Profitability: Some International Evidence,” What
World Bank Economic Review, vol. 13, no. 2, pp. 379-408, 1999.
[10] A. Dietrich, G. Wanzenried, “Determinants of bank profitability before
and during the crisis: Evidence from Switzerland,” Journal of
International Financial Markets, Institutions & Money, vol. 21, no.3, pp.
307-327, 2011.
[11] Eurostat: Your key to European statistic, Eurostat. Retrieved on July 17,
2015, from http://ec.europa.eu/eurostat/web/euro-indicators/peeis
[12] T. Fišeoráv, P. Teplý, D. Tripe, “The Performance of Foreign-Owned
Banks in Host Country Economies,” Prague Economic Papers, 2015.
[13] M. J. Flannery, “Market Interest Rates and Commercial Bank
Profitability: An Empirical Investigation,” Journal of the American
Finance Association, vol. 36, no. 5, pp. 1085-1101, 1981.
[14] P. Molyneux, J. Thorton, “Determinants of European bank profitability:
A note,” Journal of Banking & Finance, vol. 16, no. 6, s. 1173-1178,
1992.
[15] S. Polouček, D. Stavárek, Efficiency and Profitability in the Banking
Sector. Houndmills: Palgrave Macmillan, 2004, pp. 75-135.
[16] J. Revell, Inflation and Financial Institutions. London: Financial Times,
1979.
[17] B. K. Short, “The relation between commercial bank profit rates and
banking concentration in Canada, Western Europe and Japan,” Journal
of Banking and Finance, vol. 3, no. 3, pp. 209–219, 1979.
[18] M. Smirlock, “Evidence on the (Non) Relationship between
Concentration and Profitability in Banking,” Journal of Money, Credit
and Banking, vol. 17, no. 1, pp. 69-83, 1985.
[19] CH. K. Staikouras, G. E. Wood, “The Determinants of European Bank
Profitability,” International Business & Economics Research, vol. 3, no.
6, pp. 57-68, 2004.
[20] P. Vodová, “Liquid Assets in Banking: What Matters in the Visegrad
Countries?” E+M Eonomics and Management, vol. 16, no. 3, 2013.
[21] R. S. Witte, J. S. Witte, Statistics. Wiley, 2009.
@article{"International Journal of Business, Human and Social Sciences:71573", author = "Libena Cernohorska", title = "Factors Influencing Bank Profitability of Czech Banks and Their International Parent Companies", abstract = "The goal of this paper is to specify factors influencing
the profitability of selected banks. Next, a model will be created to
help establish variables that have a demonstrable influence on the
development of the selected banks' profitability ratios. Czech banks
and their international parent companies were selected for analyzing
profitability. Banks categorized as large banks (according to the
Czech National Bank's system, which ranks banks according to
balance sheet total) were selected to represent the Czech banks. Two
ratios, the return on assets ratio (ROA) and the return on equity ratio
(ROE) are used to assess bank profitability. Six endogenous and four
external indicators were selected from among other factors that
influence bank profitability. The data analyzed were for 2001–2013.
First, correlation analysis, which was supposed to eliminate
correlated values, was conducted. A large number of correlated
values were established on the basis of this analysis. The strongly
correlated values were omitted. Despite this, the subsequent
regression analysis of profitability for the individual banks that were
selected did not confirm that the selected variables influenced their
profitability. The studied factors' influence on bank profitability was
demonstrated only for Ceskoslovenska Obchodni Banka and Société
Générale using regression analysis. For Československa Obchodni
Banka, it was demonstrated that inflation level and the amount of the
central bank's interest rate influenced the return on assets ratio and
that capital adequacy and market concentration influenced the return
on equity ratio for Société Générale.", keywords = "Banks, profitability, regression analysis, ROA, ROE.", volume = "9", number = "12", pages = "4215-6", }