Market Structure, Business Cycle and Bank Profitability : Evidence on Polish Banks
The study examines the impact of banking-sector structure and macroeconomic changes on bank profitability in the Polish banking sector over the past fifteen years (i.e. prior to and during the global financial crisis of 2008). The model developed in this paper incorporates the traditional structure- -conduct-performance (SCP) hypothesis, as well as the relative market power hypothesis (RMP). Furthermore, this paper examines the overall effect of financial structure and macroeconomic conditions to determine whether financial development and business cycles affect the profit of Polish banks. Finally, this paper tests the impact of foreign capital on the profitability of Polish banks. Empirical results based on panel data set describing both micro-level and macro-level data find no evidence of the SCP hypothesis. However, this paper finds that foreign ownership and disintermediation have a positive effect on bank profitability in the period 1997-2012. As in other European countries, the profitability of commercial banks in Poland is contingent upon the business cycle. (original abstract)
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