ABSTRACT
From the shareholders’ point of view, the profitability and efficiency of the bank are decisive. These categories are interlinked and therefore a joint chapter has been dedicated to them. Profitability directly influences a bank’s dividend capacity and capital-building capacity, and this determines the potential for lending. The chapter presents the typical measures of bank profitability (ROE, ROA and NIM) and the relationship between them, in which DuPont analysis is helpful. Attention is also drawn to the need to analyse profitability in conjunction with risk, that is the application of the RAPM concept in practice. Against this backdrop, a number of risk-adjusted profitability indicators are juxtaposed. The RoRWA model, which is a useful tool for the management of a banking enterprise, occupies a special place here. The chapter also includes a critical analysis of parametric, non-parametric and indicator-based performance measures. This section of the monograph also addresses the topic of diversification of income sources and, as is the case with most other chapters, includes a review of empirical studies in which bank profitability acts as both the dependent and independent variable. While the COVID-19 pandemic affected the European banking sectors to a similar extent, the war in Ukraine left a different mark on Western European countries and Central and Eastern European countries. Therefore, in addition to analysing the profitability of Eurozone banks, this chapter focuses on the impact of geopolitical risk on the profitability of the Polish banking sector.
