IS THE PROFITABILITY OF THE MACEDONIAN BANKS DRIVEN BY HIGHER EFFICIENCY?

Abstract

The question of how Macedonian banks managed to main- tain their performances and double their profits even during periods of slow credit growth and low financial intermediation is always contentious. This pa- per aims to identify the drivers supporting positive and stable returns in the Macedonian banking sector, aspiring to try to answer the question: Does higher efficiency drive the Macedonian banks’ profitability? The paper is focused on the determinants of bank profitability in the Macedonian banking sector. It aims to identify the drivers supporting positive and stable returns in 12 Macedonian banks for the period from 2007 to 2021. Using regression with time-fixed effects and a yearly data set compiled from revised individual financial reports of each bank, authors alternatively evaluate the impact of five independent variables (loan to deposits ratio, net-interest margin, overhead costs, equity multiplier, and fee income) on return on assets, set in the model as a dependent variable. Based on the results, it can be concluded that several factors, including net interest income, operating costs, and fee income, influence banks’ profit- ability. These variables significantly impact banks’ profitability, as indicated by the estimated coefficients of the panel data model. On the other hand, the loan-to-deposit ratio and assets-to-capital ratio were insignificant in the model, suggesting that they have little to no impact on bank profitability.