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Mr. Selim A Elekdag, Sheheryar Malik, and Ms. Srobona Mitra

economic upswing, this increase in profitability may be predominantly driven by banks with sound balance sheets. In contrast, a large share of banks with weaker balance sheets may not be in a position to benefit from stronger economic growth. Therefore, focusing only on the soundness of banks on average would mask the deeper structural problems concentrated in the weaker tail of the bank profitability distribution. To fill this gap in the literature, this paper proposes a probabilistic approach, which places greater emphasis on bank heterogeneity by focusing on bank

Mr. Selim A Elekdag, Sheheryar Malik, and Ms. Srobona Mitra
This paper explores the determinants of profitability across large euro area banks using a novel approach based on conditional profitability distributions. Real GDP growth and the NPL ratio are shown to be the most reliable determinants of bank profitability. However, the estimated conditional distributions reveal that, while higher growth would raise profits on average, a large swath of banks would most likely continue to struggle even amid a strong economic recovery. Therefore, for some banks, a determined reduction in NPLs combined with cost efficiency improvements and customized changes to their business models appears to be the most promising strategy for durably raising profitability.
Mr. Selim A Elekdag, Sheheryar Malik, and Ms. Srobona Mitra

determinants of profitability across large euro area banks using a novel approach based on conditional profitability distributions. Real GDP growth and the NPL ratio are shown to be the most reliable determinants of bank profitability. However, the estimated conditional distributions reveal that, while higher growth would raise profits on average, a large swath of banks would most likely continue to struggle even amid a strong economic recovery. Therefore, for some banks, a determined reduction in NPLs combined with cost efficiency improvements and customized changes to

International Monetary Fund. Monetary and Capital Markets Department

distribution. 5. This study attempts to fill these gaps by addressing the following questions : What are the key bank-specific, cyclical, and structural determinants of bank profitability? How would a change in these determinants affect the conditional distribution of banks’ profitability? More specifically, how would higher growth, or for example, a lower nonperforming loan (NPL) ratio, affect the profitability distribution, particularly the lower tail of the distribution? 6 6. Focusing on large euro area banks, this chapter addresses these questions with relatively

International Monetary Fund. Monetary and Capital Markets Department

the euro area led by Daniel Hardy. It contains technical analysis and detailed information underpinning the FSAP’s findings and recommendations. Further information on the FSAP can be found at http://0-www-imf-org.library.svsu.edu/external/np/fsap/fssa.aspx CONTENTS Glossary EXECUTIVE SUMMARY DETERMINANTS OF EURO AREA BANK PROFITABILITY A. Introduction B. Conceptual and Empirical Framework C. Data, Key Trends, and Stylized Facts D. Econometric Analysis E. Conditional Profitability Distributions F. Weakest Bank Profits in 2016—An Illustrative Exercise G

International Monetary Fund. Monetary and Capital Markets Department
This technical note consists of five chapters focusing on various aspects of systemic risk analysis across the euro area financial system. The chapters cover bank profitability, balance sheet- and market-based interconnected analysis, contingent claims analysis, and a brief discussion of data gaps in the nonbank, non-insurance (NBNI) financial sector. The ongoing economic recovery will support euro area bank profitability in general, but it is unlikely to resolve the structural challenges faced by the least profitable banks despite some recent improvements. This is important because persistently weak bank profitability is a systemic financial stability concern. Empirical analysis of 109 major euro area banks over 2007–2016 reveals that real GDP growth and the NPL ratio are the most reliable determinants of profitability, after accounting for other factors. Although higher growth would raise profits, a large swath of banks with the weakest profitability would most likely continue to struggle even with a robust recovery. Therefore, banks should take advantage of the current upswing by resolutely addressing their NPL stocks—such a strategy holds the most promise for weak banks’ profitability prospects.
International Monetary Fund. Middle East and Central Asia Dept.

, health, and transportation, while low-contact-intensive ones comprise consumer durables and nondurables, manufacturing, chemicals, business equipment, telecommunication, and utilities. Firms are ranked by their pre-pandemic performance based on their average profitability in 2018–19 (bottom and top quartile of the 2018–19 profitability distribution). EMs = emerging market economies. Firms in HCI sectors faced the brunt of the pandemic and are yet to recover. During the first half of 2020, revenues in these sectors contracted more than in low-contact-intensive (LCI

International Monetary Fund

, about 27 percent of listed companies in 2002 had a debt-asset ratio that exceeded 40 percent—a figure that has changed little since 1993. Japan: Profitability Distribution of Debt-Asset Ratios, (1993 vs. 2002; Unweighted; By number of firms Source: Worldscope. Profitability 17. Average profitability for listed companies has improved slightly over the period, though progress varied across sectors . The 3-year average ROA increased from 3.1 percent in 1995 to 3.9 percent in 2002. This is in contrast to the MoF Corporate Survey results which showed

Ms. Petya Koeva Brooks
This paper provides new empirical evidence on the impact of financial liberalization on the performance of Indian commercial banks. The analysis focuses on examining the behavior and determinants of bank intermediation costs and profitability during the liberalization period. The empirical results suggest that ownership type has a significant effect on some performance indicators and that the observed increase in competition during financial liberalization has been associated with lower intermediation costs and profitability of the Indian banks.
Ms. Petya Koeva Brooks

by profitability before provisioning (Profit2) in 2000/01 indicates that most nationalized banks are at the lower end of the profitability distribution. More specifically, 75 percent of all nationalized banks have profitability before provisioning in the lowest two quantiles of the distribution (see Figure 5 ). Figure V.5. Proportion of Banks (by Category) Across Quantities of the Profitability Ranking Distribution in 2000/01 State banks do not exhibit lower profitability than old private banks. The coefficient of the variable State is insignificant