TAILIEUCHUNG - BANK-SPECIFIC, INDUSTRY-SPECIFIC AND MACROECONOMIC DETERMINANTS OF BANK PROFITABILITY

How and when such theoretical uncertainty will translate into actual market movements will depend on market dynamics. Because of extreme monetary ease, short-term interest rates have been close to zero for some time and markets expect policy rates to remain low. The yield curve is quite steep yet long-term interest rates are very low by historical standards. Graph 4 shows that the US dollar term spread has been around 250–350 basis points since mid-2009. The pricing of interest rate derivatives products suggest a high carry-to-risk ratio for those with long positions (the lower panel of Graph 4). This interest rate. | BANK OF GREECE BANK-SPECIFIC INDUSTRY-SPECIFIC AND MACROECONOMIC DETERMINANTS OF BANK PROFITABILITY Panayiotis P. Athanasoglou Sophocles N. Brissimis Matthaios D. Delis Working Paper No. 25 June 2005 BANK-SPECIFIC INDUSTRY-SPECIFIC AND MACROECONOMIC DETERMINANTS OF BANK PROFITABILITY Panayiotis P. Athanasoglou Bank of Greece Sophocles N. Brissimis Bank of Greece and University of Piraeus Matthaios D. Delis Athens University of Economics and Business ABSTRACT The aim of this study is to examine the effect of bank-specific industry-specific and macroeconomic determinants of bank profitability using an empirical framework that incorporates the traditional Structure-Conduct-Performance SCP hypothesis. To account for profit persistence we apply a GMM technique to a panel of Greek banks that covers the period 1985-2001. The estimation results show that profitability persists to a moderate extent indicating that departures from perfectly competitive market structures may not be that large. All bank-specific determinants with the exception of size affect bank profitability significantly in the anticipated way. However no evidence is found in support of the SCP hypothesis. Finally the business cycle has a positive albeit asymmetric effect on bank profitability being significant only in the upper phase of the cycle. Keywords Bank profitability business cycles and profitability dynamic panel data model JEL classification G21 C23 L2 Acknowledgements The authors would like to thank I. Asimakopoulos E. Georgiou H. Gibson J. Goddard P. Molyneux and G. Tavlas as well as participants of the 3rd Annual Conference of the Hellenic Finance and Accounting Association December 2004 Athens for very helpful comments. The views expressed in this paper do not necessarily reflect those of the Bank of Greece. Correspondence Panayiotis P. Athanasoglou Economic Research Department Bank of Greece 21 E. Venizelos Ave. 102 50 Athens Greece Tel. 30210-320 2449 Email pathanasoglou@bankofgreece. 1. .

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