Bogdan Capraru

Determinants of Banks’ Profitability: Evidence from EU 27 Banking Systems

Abstract In this study we assess the main determinants of banks’ profitability in EU27 over the period 2004-2011. We split the factors that influence bank profitability in two large groups: bank-specific (internal) factors and industry specific and macroeconomic (external) factors. We consider as proxy for banks profitability the return on average assets (ROAA) and the return on average equity (ROAE). The empirical findings are consistent with the expected results. Credit and liquidity risk, management efficiency, the diversification of business, the market concentration/competition and the economic growth have influence on bank profitability, both on ROAA and ROAE. An interesting and valuable result is the positive influence of competition on bank profitability in EU27.

Impact of financial liberalization on banking sectors performance from central and eastern European countries.

In this paper we analyse the impact of financial liberalization and reforms on the banking performance in 17 countries from CEE for the period 2004–2008 using a two-stage empirical model that involves estimating bank performance in the first stage and assessing its determinants in the second one. From our analysis it results that banks from CEE countries with higher level of liberalization and openness are able to increase cost efficiency and eventually to offer cheaper services to clients. Banks from non-member EU countries are less cost efficient but experienced much higher total productivity growth level, and large sized banks are much more cost efficient than medium and small banks, while small sized banks show the highest growth in terms of productivity.

Determinants Of Bank’s Profitability In EU15

Abstract In this paper we analyse determinants of bank profitability of EU15 banking systems for the period 2001-2011. We use as proxy for banks profitability the return on average assets (ROAA), the return on average equity (ROAE) and net interest margin (NIM). We also measure the impact of the first and the largest wave of enlargement (10 new members in 2004) on EU15 bank profitability, introducing a dummy variable. The contribution of this paper for the empirical literature is that there are no other studies that deal bank profitability for all EU 15 countries for the period considered (2001-2011). The literature splits the factors that influence banks’ profitability in two large groups: bank-specific (internal) factors and industry specific and macroeconomic (external) factors. Our results are in line with the economic theory. Cost to Income Ratio, credit risk and market concentration had a negative influence in case of all measures of banks’ profitability, while bank liquidity only for ROAE and NIM. The size of banks had a negative impact on NIM, suggesting that bigger the bank is, smaller the net interest margin ratio is, but, on the contrary, in case of ROAA, had a direct effect. The market concentration had a negative influence, meaning that the increasing competition, as a structural point of view, increases banks’ profitability. The results show us that the process of European Union enlargement from 2004 does not have significant impact on EU15 banking systems’ profitability. It has a week and negative effect only in case of net interest margin. As policy recommendations, we suggest for authorities a better supervision for credit risk and liquidity and maintaining a competitive banking environment. For banks’ management we also recommend to monitor the credit risk indicators, optimizing costs and diversifying the sources of income.

Impact of Financial Liberalization on Banking Sectors Performance from CEEC

In this paper we analyze the impact of financial liberalization and reforms on the banking performance in 17 countries from CEE for the period 2004–2008 using a two-stage empirical model that involves estimating bank performance in the first stage and assessing its determinants in the second one. From our analysis it results that banks from CEE countries with higher level of liberalization and openness are able to increase cost efficiency and eventually to offer cheaper services to clients. Banks from non-member EU countries are less cost efficient but experienced much higher total productivity growth level and large sized banks are much more cost efficient than medium and small banks, while small sized banks show the highest growth in terms of productivity.

Corporate Governance and Efficiency in Banking: Evidence from Emerging Economies

This paper investigates the impact of corporate governance on bank efficiency across a sample of 139 commercial banks from 17 countries of Central and Eastern Europe during the period 2005-2012. The empirical findings indicate that implementing rigorous corporate governance structures is associated with higher costs for banks and a lower level of efficiency. But, during the crisis a tight governance mechanism significantly increases banks’ cost and technical efficiencies. Also, tight risk management is associated with both higher cost and technical efficiency for more capitalized banks, while rigid supervisory boards are linked with higher technical efficiency for more capitalized banks.

Convergence of Bank Efficiency in Emerging Markets: The Central and Eastern European Countries’ Experience

In our study we investigate the impact of the European Union integration process on banks’ efficiency and the convergence of cost efficiency across banking systems from Central and Eastern European countries from 2004 to 2010. We observe large differences in the level of cost efficiency between national banking systems and we notice an increase in banking efficiency for all banking systems until 2008. However, starting with 2009, the evolution of the average scores of cost efficiency declined. The results provide evidence of β-convergence and σ-convergence in terms of cost efficiency among the banking systems, especially during the period 2009-2010. The convergence process is determined by an increase of the average efficiency level of less efficient banking systems, known as the “catching-up” process. The convergence process can also be determined by the decrease of the average efficiency level of the banking systems known as the “lagging-behind” process.

Gender Diversity on Boards and Bank Efficiency Across Emerging Europe

This paper investigates the impact of gender diversity on bank efficiency using a unique hand-collected dataset specific to a sample of 128 commercial banks from Central and Eastern European countries during the period 2005-2012. Robust findings that account for endogeneity indicate that the absence of women in the boardroom is associated with lower cost and technical efficiency scores, while greater gender diversity among members of banks’ boards enhances the efficiency, especially for small banks. Distinguishing between women representation in supervisory and managing boards, we empirically show that strengthening the women participation in less independent or domestic supervisory boards has a positive and significant effect on efficiency. A similar result is indicated by a greater gender diversity in the managing boards of banks with more relaxed governance practices.

The Relationship between Exchange Rates and Interest Rates in a Small Open Emerging Economy: The Case of Romania

This paper revisits the relationship between interest rates and exchange rates in a small open emerging economy using wavelet-based methodologies. Based on data for Romania, our results confirm the theoretical predictions on the interest rate - exchange rate relationship during turmoil or policy changes. In the short term, the relationship is negative, confirming the sticky-price models, and over the long term, the relationship is positive, confirming the Purchasing Power Parity theory. At the beginning of the turmoil, the exchange rate movements generally take the lead over the interest rates for the first month, but the monetary authorities take the lead afterwards. Our results reveal that in a small open emerging economy with a direct inflation targeting monetary policy regime, the relationship between exchange rates and interest rate is fundamentally different from that in an advanced economy. Also, our results stress the necessity that the central bank must pay simultaneous attention to both variables in order to achieve their monetary policy targets.

Financial Stability and Concentration: Evidence from Emerging Europe

This paper investigates the impact of banking sector concentration on financial stability, across a sample of 134 commercial banks from 17 countries of Central and Eastern Europe during the period 2007-2012. Empirical findings highlight the concentration-fragility hypothesis, indicating that a high level of concentration in the banking sector is associated with a higher probability of default among banks, especially for the smaller ones. We also show that the negative influence of concentration might be reduced through a tight supervisory framework: (i) stringent official supervisory power of the banking sector, but also, (ii) differences between host and home country in terms of supervisory power, can significantly reduce the negative impact of concentration on banks’ probability of default.

THE MONETARY POLICY OF THE NATIONAL BANK OF ROMANIA IN THE INFLATION TARGETING ERA. A TAYLOR RULE APPROACH

Abstract In this paper we analyse the monetary policy of the National Bank of Romania during 2005-2015 by estimating the Taylor rule, on a quarterly basis. We determined the potential GDP by employing the Hodrick-Prescott filter, in order to distinguish between the cyclical and the structural components of the output. Then, we estimated the traditional Taylor rule function (with a classic OLS regression), but slightly modified, as to take into account the forward-looking attitude of the NBR. The results confirm the direct correlation between the monetary policy rate and the output gap on the one hand, and the inflation differential (inflation - inflationtarget) on the other hand. Also, the results show us that NBR paid a higher attention to the dynamics of the inflation versus its target than to the output gap. Last, but not least, the central bank has been also sensitive to the financial stability, as reflected by the results of the incorporation of the ROBOR-EURIBOR spread in the classical Taylor rule.