A Panel Study on the Determinants of Profitability of Bulgarian Commercial Banks

This study examines the determinants of profitability for 21 Bulgarian commercial banks over the period from the first quarter of 2007 to the first quarter of 2025, using financial statement data. Bank profitability is measured by return on assets (ROA) and return on equity (ROE) and modeled within a panel autoregressive distributed lag (PMG-ARDL) framework. The empirical specification combines bank-specific and macroeconomic variables, allowing for the identification of both long-run equilibrium relationships and short-run bank-level dynamics. The long-term results indicate that the net interest margin (NIM), net fee and commission margin (NFM), government bond yields, the growth of the gross domestic product (GDP), and the loan-to-deposit ratio (LDR) positively affect profitability. On the other hand, higher unemployment, rising housing prices, increased loan loss impairments, and the ratio of cash holdings to total assets reduce profitability. The findings provide policy-relevant insights for bank management, regulators, and macroprudential authorities regarding efficiency, income diversification, and credit risk management. The findings facilitate a more comprehensive assessment of banking sector resilience and provide a foundation for the development and refinement of macroprudential and supervisory policy measures.