Determinants of bank profitability in UK on the eve of the Brexit

The paper analyses bank profitability in a sample of UK commercial banks during the period 2007–2018. The models measuring profitability include as dependent variables the Return on Average Assets (ROAA), Return on Average Equity (ROAE) and Net Interest Margin (NIM) while explanatory variables used include a set of internal (bank-specific) and external macroeconomic factors. The results indicate that bank profitability is not only affected by internal-/bank-specific factors, but also affected by macroeconomic indicators. While largely findings corroborate general pertinent literature findings, they provide and up-to-date outlook on bank profitability in the UK on the eve of the Brexit. The findings of the analysis indicate that the size of the banks has a negative role in the profitability due to the existence of economies of scale for the smaller banks and diseconomies for the larger. Additionally, as far as the external macroeconomic factors are concerned, the sign of GDP per capital growth varies and depends on the measurements of profitability. It can be assumed that the macroeconomic factors affects the profitability of the banking sector.