Ownership Structure and Profitability of the Banking Sector : The Evidence from the SEE-6 Region

The purpose of this paper is to investigate the relationship between bank ownership and bank profitability in six South Eastern European countries (SEE-6): Croatia, Bulgaria, Romania, Serbia, FYR Macedonia, and Albania. Like in most other Eastern European countries, the transition period in the selected set of six Balkan countries was characterized by a large influx of foreign investors, mostly Western European banks. As most of the authors emphasize the beneficial effects of foreign banks' entry into developing Eastern European economies, there is still very little evidence on the impact of foreign owned banks on profitability in the banking industry in the SEE-6 region. Partly, these countries were included as a subset in some other much broader studies, but the research performed specifically for this region is scarce. The empirical analysis is based on the available individual bank data provided by Bank Scope database. The profitability indicators are selected following the recently published studies in the field. In the first part of the analysis, the profitability differences between foreign owned and domestic banks are tested. In the second part, the bank level and country level determinants of specific profitability indicators for foreign and domestic banks are detected, using the regression analysis. Results do not reveal any substantial statistically significant differences between profitability measures of domestic and foreign owned banks, while the econometric tests identify several factors that are clearly associated with bank profitability