Performance and development of banking sector in the South Eastern Europe

Abstract

To contribute to the existing knowledge of bank profitability in South Eastern Europe (SEE), this study sought to identify significant bank-specific, industry-related and macroeconomic determinants of bank profitability. Using a panel data set comprising observations of 8 SEE countries over the period 2002-2007, regression results reveal that, with the exception of banking sector’s size, all bank-specific determinants significantly affect bank profitability in the anticipated way. The effect of state ownership is negative while at the same time, a positive relationship between foreign ownership and profitability was not identified. Market concentration is insignificant, whilst the picture regarding the macroeconomic determinants is mixed. This study also presents the reform process in the SEE banking sector and the bank performance and developments in the selected SEE countries under study, over the examined period of time. Finally, some concluding remarks on the findings and some policy suggestions are offered.