2020 | vol. 25, nr 2-3 | 1-23
Article title

The factors affecting bank profitability: The case of Bosnia and Herzegovina

Title variants
Czynniki wpływające na rentowność banków: przypadek Bośni i Hercegowiny
Languages of publication
This research includes all banks in Bosnia and Herzegovina (B&H) and testing internal and external variables on bank profitability indicators. The primary goal of this paper is to determine, through correlation and regression analysis, the strength and significance of the external and internal variables on bank profitability in Bosnia and Herzegovina. Likewise, data were collected from quarterly reports of the Banking Agency of the Federation of B&H and the Banking Agency of the Republika Srpska for the period 2008 Q1 to 2019 Q4. The following dependent variables were used: ROA, ROE and independent variables: GRNGL, GRNPL, GRGDP, concentration ratio of loans of the largest banks in the system (CR Loans), concentration ratio of deposits of the largest banks in the system (CR Deposits), CAR and loan-to-deposit ratio. The study found that there is a significant statistical impact of the variables on ROA and ROE. In addition, this study points out the need for banks to properly select debtors, and control costs, toxic loans and provisions in order to increase profits and reduce costs.
Badaniem objęto wszystkie banki funkcjonujące w Bośni i Hercegowinie. Głównym jego celem jest określenie znaczenia zewnętrznych i wewnętrznych zmiennych dotyczących rentowności banków. Podstawą analizy są dane pochodzące z raportów kwartalnych Agencji Bankowej Federacji B&H i Agencji Bankowej Republiki Serbskiej za lata 2008-2019. Do analizy korelacji i regresji wykorzystano następujące zmienne zależne: ROA i ROE oraz zmienne niezależne: GRNGL, GRNPL, GRGDP, wskaźnik koncentracji kredytów największych banków w systemie (pożyczki CR), wskaźnik koncentracji depozytów największych banków w systemie (depozyty CR), CAR i wskaźnik zdolności kredytowej do depozytu. Badanie wykazało istotny wpływ statystycznych zmiennych na ROA i ROE. Dodatkowo wskazano na potrzebę właściwego wyboru dłużników przez banki oraz kontroli kosztów, toksycznych pożyczek i rezerw w celu zwiększenia zysków i obniżenia kosztów.
Physical description
  • University of Zenica, Zenica, Bosnia and Herzegovina
  • Babouček, I., and Jančar, M. (2005). Effects of macroeconomic shock to the quality of the aggregate loan portfolio (Working Paper Series No. 1). Czech National Bank, 1-62.
  • Banking Agency of Republika Srpska. (2018). Report on Condition of the Banking System of Republika Srpska. Retrieved from
  • Banking Agency of the Federation of Bosnia and Herzegovina. (2018). Information on the Banking System Entities of the Federation of Bosnia and Herzegovina. Retrieved from
  • Banking Agency of the Federation of Bosnia and Herzegovina. (2019). Information on the Banking System Entities of the Federation of Bosnia and Herzegovina. Retrieved from upload/docs/informacija_o_bankarskom_sistemu_30092019_eng_fra.pdf
  • Bessis, J. (2006). Risk management in banking. London: John Wiley & Sons Ltd.
  • Bikker, J. A., and Bos, J. W. B. (2008). Bank performance: A theoretical and empirical framework for the analysis of profitability, competition and efficiency. New York: Routledge.
  • Bokhari, I. H., and Ali, S. M. (2009). Determinants of capital adequacy ratio in banking sector: An empirical analysis from Pakistan. Academy of Contemporary Research Journal, 1(1), 1-9.
  • Borio, C., Gambacorta, L., and Hofmann, B. (2015). The influence of monetary policy on bank profitability (BIS Working Papers No. 514), October.
  • Boubakri, N., Cosset, J., Fischer, K., and Guedhami, O. (2005). Privatization and bank performance in developing countries. Journal of Banking and Finance, 29, 2015-2041.
  • Bordeleau, É., and Graham, C. (2010). The impact of liquidity on bank profitability (Working Paper/ Document de travail).
  • Căpraru, B., and Ihnatov, I. (2015). Determinants of bank’s profitability in the EU15. Scientific Annals of the AlexandruIoanCuza, 62(1), 93-101.
  • Ćuraka, M., Poposkib, K., and Pepura, S. (2012). Profitability determinants of the Macedonian banking sector in changing environment. Procedia-Social and Behavioral Sciences, 44, 406-416.
  • Dietrich, A., and Wanzenried, G. (2011). Determinants of bank profitability before and during the crisis: Evidence from Switzerland. Journal of International Financial Markets, Institutions and Money, 21(3), 307-327.
  • Đukić, Đ. (2011). Upravljanje rizicima i kapitalom u bankama. Beograd: Centar za izdavačku delatnost Ekonomskog fakulteta u Beogradu.
  • Flannery, M. J., and Rangan, K. P. (2008). What caused the bank capital build-up of the 1990s?, Review of Finance, 12, 391-429.
  • Goddard, J., Molyneux, P., and Wilson, J. (2004). Dynamics of growth and profitability in banking, Journal of Money, Credit and Banking, 36(3), 1069-1090.
  • Gorton, F., and Winton, A. (2005). Financial intermediation. Harrysburg, PA: University of Pennsylvania Press.
  • Gul, S., Irshad, F., and Zaman, K. (2011). Factors affecting bank profitability in Pakistan. The Romanian Economic Journal, 39, 61-87.
  • Ibrahimov, A. (2016). The impact of devaluation and oil price on the banking sector of Azerbaijan (Master’s dissertation). Porto University, Porto, Portugal, July. Retrieved April 12, 2020 from
  • Koch, T. W., and MacDonald, S. S. (2009). Bank management. Cengage Learning.
  • Kosmidou, K. (2008). The determinants of banks’ profits in Greece during the period of EU financial integration. Managerial Finance, 34(3), 146-159.
  • Mishkin, F. S. (2007). The economics of money, banking, and financial markets (eight edition). The Addison-Wesley Series in Economics.
  • Naceur, S. B., and Omran, M. (2011). The effects of bank regulations, competition, and financial reforms on banks’ performance. Emerging Markets Review, 12, 1-20.
  • Ongore, V. O., and Kusa, G. B. (2013). Determinants of financial performance of commercial banks in Kenya. International Journal of Economics and Financial Issues, 3(1), 237-252.
  • Satria, I., Supriyadi, E., Irfani, A., and Djamil, A. (2018). The most important factors affecting profitability of the top 10 commercial banks in Asean. The International Journal of Social Sciences and Humanities Invention, 5(05), 4742-4753.
  • Sinkey, J. F. (1998). Commercial bank financial management. New York, London: Macmillan. The Central Bank of Bosnia and Herzegovina. (2018). Financial Stability Report. Retrieved from
  • Trujillo-Ponce, A. (2013). What determines the profitability of banks? Evidence from Spain. Journal of Accounting and Finance, 53, 561-586.
  • Vong, A. P. I., and Chan, H. S. (2009). Determinants of bank profitability in Macao (Working Paper Series), University of Macau, 93-113.
Document Type
Publication order reference
YADDA identifier
JavaScript is turned off in your web browser. Turn it on to take full advantage of this site, then refresh the page.