Determinants Of Banks’ Profitability In Republic Of Macedonia

The commercial banks are important financial institutions in the financial system and the economy. As financial intermediaries, banks play a crucial role in the economic growth of the country through making available the funds for investors to borrow as well as financial deepening in the country. Therefore, the success of working in the banks creates possibilities for more efficient (cheaper) crediting of economic entities which results in an increased potential for investing of the enterprises and encouraging the personal people’s spending. Namely, the banking system profitability is the most important instrument of the financing system that has positive influence on potential growth of each national economy. The objective of this study is to investigate the determinants in bank profitability in R. Macedonia. For that reason, Return of Assets, Return of Equity and Net Interest Margin, are taken as indicators of the banks’ profitability. On the other hand, the determinants influencing profitability are grouped into two categories, i.e. internal and external. The bank internal determinants, which were thought to have effects on profitability, are total loans, asset quality (non-performing loan to total loan ratio), capital adequacy and total deposit to total assets. In our study we use the gross domestic product and inflation rate as external determinants of bank profitability. The results indicate that the bank specific determinants have been more effect than macroeconomic factors on profitability of the banks.