Determinants of Bank Performance in the Context of Crisis: A Panel Data Analysis for Portugal

Maria Rosa Borges, Ana Sofia Tavares
European Research Studies Journal, Volume XXIII, Issue 4, 674-686, 2020
DOI: 10.35808/ersj/1708

Abstract:

Purpose: This research aims to study the determinants of the performance of the Portuguese banking sector, in the period between 2005 and 2011, characterized by economic downturn and by the bailout of Portuguese economy. Design/Methodology/Approach: Bank performance is measured through Return on Assets (ROA) and Return on Equity (ROE), following the studies that relies on financial statements. We test the impact of a set of internal factors such as the bank's capital, costs, liquidity, asset quality, size and diversification, and external factors such as GDP, inflation, unemployment and market concentration in the performance of Portuguese banks, using a panel data model with fixed effects for a representative sample of Portuguese banks. Findings: The results showed that the variables with the highest explanatory power on the ROA, in terms of internal determinants were operational costs and liquidity and in terms of external determinants, were GDP and Inflation. For the ROE, the variables with greater significance were the capital, operating costs and liquidity. The variables GDP and Inflation suggested weak significance. Practical Implications: Our results showed that macroeconomic variables such as product growth, inflation and unemployment rate influence the performance of banks, and therefore it is important to monitor these economic indicators in order to incorporate them in the decision-making process. The results obtained for the internal variables, under the control of bank managers, show that liquidity and operating costs are relevant for performance. Originality/Value: The value of this article is that it provides empirical evidence on the determinants of bank performance in the Portuguese banking sector, thus adding to international evidence of country studies.


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