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The performance of commercial banks and the determinants of profitability: Evidence from Kosovo

Govori, Fadil (2013): The performance of commercial banks and the determinants of profitability: Evidence from Kosovo.

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Abstract

Financial intermediaries perform indirect financing, and in this context, commercial banks are very important participants. They carry out the bulk of indirect financing transactions. On the other hand, the implementation mechanism of monetary policy is closely linked to the functioning of the banking system.

Kosovo’s Commercial Banks performance is satisfactory compared with regional. In this paper we provide some of the performance indicators. The rates of return of commercial banks are greatly and directly affected by the net interest margin, provisions for loan losses, revenues and expenses by the non-interest, taxes and the equity multiplier. In this context, liquid assets do not appear to be of high impact in determining and variability the rate of return, high liquidity with low returns.

Also, we address the impact of the global financial crisis “2008-20012” in the commercial banks performance in Kosovo, mainly through the impact of the decline in the asset use ratio. We think that was a positive approach that banks have followed the course of returns fall by the reduction in interest-expenditures, while the costs of provisions for loan losses to total average assets marked constant level throughout the period, despite the increasing ratio of nonperforming loans.

Drawing on these findings it is recommended that banks even further engage in reducing operational costs; diversify income sources in order not to rely exclusively on the interests of loans, and to strengthen credit risk management in order to minimize the credit risk.

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