Analysis of Profitability Determinants: Empirical Evidence of Commercial Banks in the New EU Member States

For ensuring a healthy, solid and stable banking sector, the evaluation and analysis of bank profitability is crucial so that possible weak points and vulnerabilities can be corrected and disposed. The aim of our research is to empirically evaluate the impact of specific internal and external factors on bank profitability, for a sample of 86 commercial banks in the new EU member states, for the period 2003-2011. The results of our research show that bank profitability of most countries in the sample (expressed by ROAE) is significantly influenced by the four bank-specific factors, namely capital adequacy, the ratio of non-performing loans, cost-to-income ratio and bank size, but also by external factors, like banking concentration, annual GDP growth rate and inflation.