Determinants of Profitability of Polish Banks: The Role of Foreign Banks

Abstract

The aim of this study is to examine the effect of bank-specific and macroeconomic determinants of bank profitability in Poland using an empirical framework that incorporates the traditional Structure-Conduct-Performance (SCP) hypothesis as well as the Relative Market Power (RMP) hypothesis. This paper also examines the overall effect that financial structure and macroeconomic conditions had during the global financial crisis of 2008. Finally, this paper tests the effect of foreign capital on the profitability of Polish banks and attempts to determine if there is a link between the context of the parent banks and the profitability of their affiliates during the global financial crisis of 2008 and the debt crisis in the Eurozone. Empirical results based on panel data sets containing both micro-level and macro-level data are ambiguous, and we found evidence of the RMP hypothesis only. Furthermore, this paper found a positive correlation between the context of parent banks and the profitability of their affiliates. Finally, we determined that the profitability of commercial banks in Poland was contingent upon the business cycle.