Abstract
Many articles discuss the importance of banking systems and their profitability as well as the factors determining these. This article examines the determinants of bank efficiency in the Albanian banking industry. During the second half of this decade a considerable decrease in the efficiency ratio of the Albanian banking system was evident. To understand which factors affected the efficiency, and whether Albania should control certain factors in order to improve efficiency, relationships between particular factors were analyzed using a multiple regression analysis. The study examines 16 commercial banks in Albania, from 1998 to 2015. It finds a significant relationship between efficiency, capital adequacy, the return on assets, and solvency
Highlights
Albania is a country with a weak and undeveloped financial industry, which mainly focuses on the banking system
This article mainly focuses on ways of increasing the efficiency of commercial banks in Albania in order to manage their risky portfolios
The relationship between profitability and financial structure has been previously studied by Petria, Capraru, and Ihnatov (2015), Berger (1995), and Pilloff and Rhoades (2002). Most of these studies have used the return on assets (ROA) as a proxy for profitability, and solvency, or capital adequacy as a proxy for financial structure
Summary
Albania is a country with a weak and undeveloped financial industry, which mainly focuses on the banking system. When a system becomes deeply entrenched with a highly toxic and risky portfolio, the problem is usually related to asset restructuring. In such circumstances, analyzing the financial sector to determine the factors that can return the system to an efficient state is very important. This article mainly focuses on ways of increasing the efficiency of commercial banks in Albania in order to manage their risky portfolios. The following section contains the theoretical background to the most appropriate definitions for each of the variables and the relationship between bank efficiency and degree of financial leverage, provision coverage, capital adequacy, the return on equity, and solvency. The last section of this paper contains the main concluding remarks
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