FACTORS THAT DETERMINE THE PROFITABILITY OF COMMERCIAL BANKS IN KOSOVO

Abstract

The main role of any financial system is to help transfer funds from savers to borrowers by increasing consumption and investment in the economy. If a financial system is efficient, then it should show improvements in profit, increasing the volume of flow of funds into the economy and providing quality customers service. Unlike developed countries, where this flow of funds is enabled by financial markets, in developing countries where we are part, the functioning of these markets is often lacking. Due to the lack of markets, all the weight of this falls in the banking sector, which sector plays an important role in the intermediary economy and this indicates the importance of studying the profitability of this sector, which profitability depends on many factors.

The paper aims to analyze the profitability sensitivity of the banking sector in Kosovo to some of the factors that we have treated in the paper as internal and external or macroeconomic factors. To carry out this analysis, the paper uses a regression analysis for a time series covering a period of 7 years (2012 - 2018), using the data from commercial banks in Kosovo and some macroeconomic indicators. The result shows that the ratio of non-performing loans is negatively related to the profitability of commercial banks in Kosovo measured by ROA and ROE and is considered to be the most influential factor on the profitability of these banks, among other factors studied.