Breaking the Bank? A Probabilistic Assessment of Euro Area Bank Profitability

Author/Editor:

Selim Elekdag ; Sheheryar Malik ; Srobona Mitra

Publication Date:

November 22, 2019

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper explores the determinants of profitability across large euro area banks using a novel approach based on conditional profitability distributions. Real GDP growth and the NPL ratio are shown to be the most reliable determinants of bank profitability. However, the estimated conditional distributions reveal that, while higher growth would raise profits on average, a large swath of banks would most likely continue to struggle even amid a strong economic recovery. Therefore, for some banks, a determined reduction in NPLs combined with cost efficiency improvements and customized changes to their business models appears to be the most promising strategy for durably raising profitability.

Series:

Working Paper No. 19/254

English

Publication Date:

November 22, 2019

ISBN/ISSN:

9781513516141/1018-5941

Stock No:

WPIEA2019254

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

38

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