Unveiling Banks’ Profitability in Albania: A Panel Estimation Approach

The profitability of the banking sector is a critical determinant of
the overall financial system’s stability, particularly in countries where financial
markets remain underdeveloped. Albania's banking system constitutes nearly 90% of the financial sector, making its performance a key area of study. This research aims to investigate the determinants of banking profitability in Albania by employing a panel estimator approach, utilizing data sourced from the Albanian Central Bank. The study will explore both internal bank-specific factors, such as capital structure, asset quality, and operational efficiency, as well as external macroeconomic indicators, including GDP growth, inflation, and interest rate fluctuations. Building on prior literature that has examined profitability metrics such as Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM), this study will contribute to the existing body of knowledge by offering a country-specific analysis of Albania’s banking sector. Through econometric modeling, we will assess the impact of various financial and macroeconomic variables on profitability, identifying key drivers and potential risks. Additionally, the study will examine the impact of regulatory frameworks and economic conditions on banking performance. By providing empirical insights into the dynamics of bank profitability in Albania, this research seeks to offer valuable implications for policymakers, financial regulators, and banking institutions. Understanding the determinants of profitability can support more effective banking strategies, enhance risk management practices, and contribute to Albania's financial sector's overall resilience.