Many researches have been executed referred to the determinants which influence the performance of Greek or International Banking Sector. According to literature, profitability of banks is depended on:
• Bank-specific parameters defined as the main characteristics of a bank such as bank size, capital adequacy, profitability metrics, costs, credit risk, liquidity, cost of funding, volumes of assets, loans or deposits.
• Industry-specific factors which are the main characteristics of banking sector such as ownership, concentration, industry growth rate.
• Macroeconomic factors which are characteristics of the economic environment of a bank such as inflation rate, Gross Domestic Product (GDP), unemployment rate, long and short-term interest rates.
The literature review refers, specifically, to the dependence relationship of profitability of banks with the macroeconomic factors in order to have a view of the expected results of the present research and the commentary on results of the researches is divided in two geographical categories, International Banking Sector and Greek Banking Sector.
2.1 Literature Review over International Banking Sector
Many researches have been published for the macroeconomic factors of banking profitability worldwide which lead to useful and significant conclusions.
Thornton and Molyneux (1992), in their study published in Journal of Banking and Finance, analysed the profitability of more than 1.000 banks of 18 European countries for the years 1987-1989. They examined the association between net profits and the proprtional rise in consumer price index and the long-term bond rate for each country for each year concluding to a positive association of nominal interest rates and European Banks’ profitability.
Huizinga and Demirgiu-Kunt (2000) conducted an extended research since they used banks from all countries-members of the Organisation for Economic Co-operation and
performance of banks, using as a metric Net Profits or Net Margins apart from inflation and tax rates. Inflation rates have a positive association with banking profitability which indicates that inflationary environments favour profitability. Furthermore, tax rates have also a positive association with the profitability as a result of transfering the expense to customers by banks.
Mendes and Abreu (2000) investigated the profitability of commercial banks of four Countries of European Union (Spain, Germany, Portugal and France) from 1986 to 1999 in terms of Return on Equity (ROE), Net Interest Margin (NIM) and Return on Assets (ROA).
According to the study, all profitability indicators show a strong positive linkage to inflation while GDP growth and unemployment rate affect significantly only ROE and ROA but not NIM.
Bikker and Hu (2002) investigated the profitability of banks established in 29 countries of OECD for the period 1979-1999 linking profits to Unemployment rate, GDP growth and inflation and variance of long term and short-term interest rates. According to the results of the study, GDP growth presents a significant impact on profits, showing the strong correlation between performance and business cycles. Moreover, unemployment rate demonstrated to present a significantly negative association with profits and profit margins in contrast to the variance of long and short-term interest rates which had no significance.
Different results were concluded by Samy Ben Naceur (2003) who tested the performance of Tunisian Banking Sector for the period between 1980 and 2000 using Net Interest Margin (NIM) and Return on Assets (ROA) and expressed that inflation and GDP growth cause no impact on the profitability and the interest margins of the banks.
Abdel-Hameed M. Bashir (2003) examined the factors of performance in Islamic banks of 8 Middle Eastern countries for the period 1993-1998. He used as dependent variables Return on Equity (ROE), Profit Margin Before Tax and Return on Assets (ROA), resulting that GDP per capita and inflation present a strong positive influence on performance metrics and that GDP growth has a strong linking with ROE but a not statistically significant positive impact on profit margin.
Staikouras and Wood (2004), in their research among 685 European Banks for the period 1994-1998 for the International Business & Economics Research Journal, examined the influence of macroeconomic determinants like interest rates level, GDP growth rate and personal income growth rate on Return on Assets (ROA) accordingly to the type of bank.
They estimated that interest rates notice a significant positive impact on profitability, the GDP growth has a negative association with the performance of commercial and savings banks and personal income evolution has an important positive association with co- operative banks.
Staikouras, Delis and Athanasoglou (2006) studied the elements of the performance of Banks of South Eastern Europe for the period 1998-2002. According to their essay, ROE and ROA are positively defined by the evolution of inflation rate, indicating that in an inflationary environment banks trend to increasing their incomes in a higher level than their costs. Furthermore, there was not detected a significant effect of GDP per capita evolution and profitability of banks perhaps due to the small sample period.
Albertazzi and Gambacorta (2006) surveyed the profitability of ten industrialized countries over the period 1981-2003, relating with a significantly positive dependency the GDP growth with Net Interest Income and ROE but also detecting a not significant positive dependence of inflation and profitability.
Beckmann (2007) examined profitabilityof banks of sixteen Western European Countries from 1979 to 2003, connecting ROA with GDP growth rates and long-standing interest rates. According to the results of his study, lagged GDP growth and interest rates present a substantial effect on profits of banks.
In the essay of Flamini, McDonald and Schumacher (2009) for International Monetary Fund (IMF), the profitability of 389 banks of Sub-Saharan Africa is described, linking ROA to macroeconomic factors. Inflation and GDP growth verified to have a positive influence on profit of banks while GDP per capita does not affect banking performance.
Wanzenried and Dietrich (2010) examined the dependence of ROA and ROE with macroeconomic factors for banking sector in Switzerland (sample of 453 commercial banks) for the period between 1999 and 2008. They concluded that GDP growth has no effect on performance in contrast to the regional population change and difference between 5 year and 2 year treasury bill issued by Swiss Government which have a positive effect on profits.
Moreover, taxation rates seem to influence negatively Swiss Banks’ results.
Davydenko (2010) stated that, for Ukrainian Banks for the period 2005-2009, GDP
Trujillo-Ponce (2013) tried to interpret the profitability of Banks in Spain for the period between 1999 and 2009 in terms of ROE and ROA. According to his study, profitability of Spanish banks is positively linked to GDP growth and inflation while a negative association is detected between banking profitability and the interest rate of the European Central Bank (ECB) Main Refinancing Operations (MRO).
Wanzenried and Dietrich (2013) examined the factors of performance among over 10.000 banks of 118 countries during the period 1998-2012 using ROA, ROE and NIM, adding an extra dimension of the level of revenue of the country in which the bank is based. They suggested that macroeconomic parameters like inflation and GDP growth do not effect profits of banking in high-income countries but determine positively the profits of banking in middle and low-income countries. Moreover, taxation rates show a negative influence on profits of banking sector in middle and low-income countries while GDP per capital affects only profits of low-income countries.
Lloydking, Adelopo and Tauringana (2018) considered the profitability of 123 commercial banks of ECOWAS (Economic Community of West African States) in terms of ROA and NIM and by dividing their results in three periods: the first period before economic crisis (1999-2006), the second period during economic crisis (2007-2009) and the third period after economic crisis (2010-2013). According to their findings, Net Interest Margin had a strong positive relationship with GDP growth for the initial two periods but not for the period after financial crisis, perhaps related to the adequate risk management of banks and also NIM presents a positive association with inflation during the financial crisis period.
ROA seems to have no dependence with GDP evolution but has a negative correlation with inflation for all periods.
2.2 Literature Review over Greek Banking Sector
Brissimis, Athanasoglou and Delis (2006) examined the determinants of performance of Greek Banking Industry over the period 1985-2001, analysing macroeconomic factors influence on ROE (Return on Equity) and ROA (Return on Assets). According to their results, inflation and GDP growth influence in a positive direction and significantly the profitability of Greek Banking.
In the research of Kosmidou (2009) over Greek Banking Sector’ performance for the period of European Union economic integration (1990-2002), a positive association of ROA and
GDP growth was detected, noticing that the period examined was characterized by intense product expansion compared to the rest countries of European Union. Moreover, a negative association between profitability and inflation was suggested, despite findings of other researches.
Apergis (2007) investigated the financial results of 15 Greek Banks during the period 1990- 2006, concluding that GDP growth effects in a positive direction the profits of Greek Banking Industry but estimating that the impact of GDP is greater during expansion periods than periods of recession.
Alexiou and Voyazas (2009) investigated the correlation between ROE/ROA and macroeconomic factors for six Banks in Greece during the period 2000-2007. According to the research, inflation and private consumption tend to notice a slightly positive connection with the profitability of Greek Banking while GDP evolution is considered to have no impact on banks’ results.
Giannopoulos, Zampara and Koufopoulos (2017) examined the profitability of Banking Sector in Greece during the period 2001-2014 for the International Journal of Business and Economic Sciences. Having Return on Assets (ROA) as the dependent variable of their research, they concluded that unemployment rate evolution affects negatively banks’
performance while GDP growth rate presents a positive correlation with the profits of Greek Banking Sector. Furthermore, they suggested that the rate of growth of balance of deposits of banking industry has a positive influence on performance of Greek Banking in contrast to the growth of total assets of banking industry which presents a negative result on profitability.