Determinants Affecting Bank Profitability: A Broad and Comparative Analysis Across Regions and Income Groups

This study investigates the determinants of bank profitability across regions and income groups, employing a comprehensive econometric framework. Balanced panel data for 31 European and Asian countries over the period 2000–2021 were analyzed using panel regression models (fixed and random effects), with Hausman tests applied to ensure robustness. Profitability was measured by Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM). The use of multiple profitability indicators, such as ROA, ROE, and NIM, combined with diverse determinants and interaction terms capturing the effects of major crises, allowed for a more comprehensive understanding of the factors influencing bank profitability. The results indicate that macroeconomic and bank-specific determinants significantly affect profitability, while industry-specific factors are mostly insignificant. On average, banks achieved ROA of 2.03%, ROE of 9.78%, and NIM of 4.52%. Regionally, higher ROA (2.74%) and NIM (5.38%) were observed in European banks, whereas Asian banks recorded higher ROE (11.50%). By income group, upper-middle-income countries outperformed both high- and lower-middle-income groups across all profitability metrics. These findings highlight the necessity of cross-regional and cross-income-group comparisons and provide important implications for policymakers and banking strategists regarding capital adequacy, liquidity management, and profitability under crisis conditions.