THE FACTORS EFFECTING ON BANK PROFITABILITY: THE CASE OF BOSNIA AND HERZEGOVINA

Abstract

This research includes all banks in Bosnia and Herzegovina and testing internal and external variables on bank profitability indicators. In addition, the profitability of banks in B&H is also influenced by the financial result of operations, which is determined by price and interest rate risk. The primary goal of this paper is to determine, through correlation and regression analysis, the strength and significance of external and internal variables on bank profitability in Bosnia and Herzegovina. The research period covered from 2008: q1 to 2019: q4 on a quarterly database. Also, in this paper, the STATA 13.0 software package will be used. The following dependents variable were used: return on asset (ROA) and return on equity (ROE). The following independent variables were used: the growth rate of net gross/loss (GRNGL), the growth rate of non-performing loans (GRNPL), GDP growth rate (GRGDP), concentration ratio of loans of the largest banks in the system (CR Loans), concentration ratio of deposits of the largest banks in the system (CR Deposits), capital adequacy ratio (CAR) and loan-to-deposit ratio. The total number of observations was 48. The results showed that the significant influence on the dependent variables were the return on equity (ROE) and return on asset (ROA), which has been achieved by the following independent variables, such as the growth rate of net gross/loss, the growth rate of non-performing loans and concentration ratio of loans and deposit of the largest banks.