Journal of Banking and Financial Economics

JBFE No 1/2018

Determinants of banks’ profitability and efficiency: Empirical evidence from a sample of Banking Systems

Mouna Rekik, Maha Kalai


The aim of this study is to analyze the determinants of the bank profitability and efficiency in conventional banks. This study compares accounting-based and economic-based measures of efficiency and profitability of conventional banks in fourteen countries. Accounting variables help explain cost and profit efficiency, but cost efficiency has little impact on profitability and profit efficiency. In fact, the study of profitability is crucial in assessing the health of organizations. However, profitability of the banking sector is particularly important as the soundness of the sector is closely related to the soundness of the entire economy. In this paper, banks’ profitability and its determinants in Tunisia as well as in 13 different countries were investigated. The determinants of bank profitability are analyzed with the data from 110 banks over the period 1999–2012 using the panel data method generalized method of moments. Our results suggest that researchers should probably focus more on profit efficiency than cost efficiency. Almost all banks are below the optimal size.


JEL classification: G14, G21, G32
Keywords: Bank efficiency; Bank profitability; Economy of scale.

DOI: 10.7172/2353-6845.jbfe.2018.1.1

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EU banks after the crisis: sinners in the hands of angry markets

Antonio Sánchez Serrano


European Union banks were severely hit by the global fi nancial crisis in 2008 and their stock prices and returns have generally not recovered since then, differently to what has been observed in other sectors (i.e., non-financial corporations) and jurisdictions (i.e., US). In this paper, we focus on three episodes of fi nancial turmoil in EU fi nancial markets occurring after the global fi nancial crisis (August 2015, December 2015 and January 2016, and June 2016) and, through a series of
linear regressions, with and without control variables, attempt to determine the common features of those banks which stock returns declined the most. Results of the regressions tend to suggest that size has been driving the decreases in stock returns in the three episodes. Regarding asset quality, the Texas ratio has been a decisive factor in the evolution of stock returns of EU banks in the second and third periods. Interestingly, profi tability variables seem not to be statistically significant to explain the declines in stock returns, except in the third period, but only under some specifications. An evolution on the perception by fi nancial market participants on EU banks, with a larger importance on asset quality in the latter periods, can also be observed. Lastly, on the basis of these results, further policy actions would be needed to clean-up the balance sheet of banks, as a necessary step towards full recovery after the global financial crisis.


JEL classification: G12, G14, G32, G21
Keywords: European banks, stock returns, asset quality, profi tability, global fi nancial crisis

DOI: 10.7172/2353-6845.jbfe.2018.1.2

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Animal Spirits and Risk in Financial Markets

Jukka Ilomäki


Keynes argues that a beauty contest in financial markets is a combination of rational higher-order
beliefs and market psychology or animal spirits. We find that a stable equilibrium, where also
market psychology is included, can be possible if uninformed investors agree to reduce their
required rate of return indicating that they enlarge the risk of their investment with the animal
spirits component.


JEL classification: G11, G12
Keywords: Risk, Portfolio Choice, Asset Pricing

DOI: 10.7172/2353-6845.jbfe.2018.1.3

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Macroprudential Policy Effectiveness: Lessons from Southeastern Europe

Jérôme Vandenbussche, Piyabha Kongsamut, Dilyana Dimova


This paper presents a detailed account of the rich set of macroprudential measures (MPPs)
implemented in Bulgaria, Croatia, Romania, and Serbia during their synchronized boom and bust
cycles in 2002–12, and assesses their effectiveness in managing credit growth. Only strong MPPs
helped contain domestic credit growth during the boom years, but circumvention via direct external
borrowing offset their effectiveness to a large extent. MPPs taken during the bust had no discernible
impact. The paper concludes that (i) proper calibration of MPPs is of the essence; (ii) only strong,
broad-based MPPs can contain credit booms; (iii) econometric studies of macroprudential policy
effectiveness should focus on concrete policy measures rather than on instruments use; and
(iv) in so doing should allow for possible non-linear and state-contingent effects.


JEL classification: G18, G28
Keywords: Macroprudential Policies, Financial Stability, Credit Growth, Southeastern Europe

DOI: 10.7172/2353-6845.jbfe.2018.1.4

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Macroeconomic Stability in Resource-rich Countries: The Role of Fiscal Policy

Elva Bova, Paulo Medas, Tigran Poghosyan


Resource-rich countries face large and persistent shocks, especially coming from volatile
commodity prices. Given the severity of the shocks, it would be expected that these countries
adopt countercyclical fiscal policies to help shield the domestic economy, either through larger
spending at times of commodity busts or lower spending during commodity booms. Taking
advantage of a new dataset covering 48 non-renewable commodity exporters for the period
1970–2014, we investigate whether fiscal policy does indeed play a stabilizing role. Our analysis
shows that fiscal policy tends to have a procyclical bias (mainly via expenditures) and, contrary to
others, we do not find evidence that this bias has declined in recent years. Further, we find that the
adoption of fiscal rules does not seem to reduce procyclicality in a significant way, but the quality
of political institutions does matter. Finally, we find that non-commodity revenues tend to respond
only to persistent changes in commodity prices.

JEL classification: O13, H30, C33
Keywords: commodity prices, resource-rich countries, procyclical fiscal policy, fiscal rules.

DOI: 10.7172/2353-6845.jbfe.2018.1.5

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