THE IMPACT OF MACROECONOMIC FACTORS ON BANK PROFITABILITY: EVIDENCE FROM SELECTED SOUTHEAST EUROPEAN COUNTRIES
THE IMPACT OF MACROECONOMIC FACTORS ON BANK PROFITABILITY: EVIDENCE FROM SELECTED SOUTHEAST EUROPEAN COUNTRIES

Summary/Abstract: This research investigates the impact of macroeconomic factors on aggregated banking sector profitability in nine Southeast European countries over the period from 2012 to 2021. The authors use panel data analysis to examine how GDP per capita, exchange rates, credit risk, competition, and inflation affect Return on Assets (ROA) and Return on Equity (ROE). The findings reveal a significant positive but non-linear relationship between GDP per capita and banking sector profitability, suggesting diminishing returns at higher levels of development. Possibly due to a heightened level of export competitiveness, exchange rates positively affect banking sector performance. Credit risk and competition exhibit negative effects, although they are statistically insignificant, while inflation has a minor negative effect. These results underscore the complexity and predominantly non-linear impact of macroeconomic fundamentals on banking sector profitability in transition economies. More specifically, this research contributes to the existing knowledge regarding the determinants of banking sector profitability in Southeast European countries and their implications for policy and practice. These insights are beneficial for bank management in emerging markets, policymakers, and academic researchers

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