FINANCIAL RATIOS ANALYSIS IN DETERMINATION OF BANK PERFORMANCE IN THE GERMAN BANKING SECTOR

Sandrine Lardic,Virginie Terraza

doi:10.32479/ijefi.7888

Sandrine Lardic, Virginie Terraza

Open Access

https://doi.org/10.32479/ijefi.7888

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Abstract

This paper uses dynamic panel data methods to examine the determinants of bank's performance in the German banking sector. The main determinants considered are indicators of solvency and liquidity, which makes it possible to observe the behavior of the banks in terms of risk before and during the financial crisis. The study is motivated by the hypothesis that the behavior of German banks depends on bank-specific variables which have an effect on loan policy of institutions. Universal banks in Germany can be divided into three main types of institutions: commercial, public-sector and cooperative banks. The analysis is conducted in a disaggregated manner by classifying the banks into main categories. Each category is examined separately so as to detect possible similarities or differences in the behavior of each panel on banks' performance. The empirical analysis relates to a sample of 1624 German banks observed over the period 2000-2014.

Highlights

The financial deregulation and liberalization of the economies in the 20th century, has changed the role and the institutional forms of banks in most European countries
Most investors tend to focus on return on equity as their primary measure of bank performance as return on average equity (ROAE) focuses on return to the shareholders of a bank
As financial strategies can artificially maintain a high level of ROAE, this metric to estimate the performance of a bank is interesting but insufficient

Summary

INTRODUCTION

The financial deregulation and liberalization of the economies in the 20th century, has changed the role and the institutional forms of banks in most European countries. Under the pressure of globalization of the financial systems to converge on liberal market financial practices, several European countries have implemented changes in their banking systems, which have affected the two “pillars” of the savings and cooperative banks. In some European countries, cooperative banks have completely disappeared as specific groups of financial institutions and in some others, there is a convergence of objectives with private banks suppressing the substantial difference between these banks and international commercial banks. Lardic and Terraza: Financial Ratios Analysis in Determination of Bank Performance in the German Banking Sector savings and cooperative banks, but they remained on their strong positions in the banking market as shown by Dilek et al (2013). All the other banks specializations are relatively well enough informed

DETERMINANTS FACTORS OF BANKS

MODEL AND DATA

Findings

CONCLUSION