What drives the profitability of banking sectors in the European Union? The machine learning approach
The study aims to establish patterns of relations between the profitability of the European Union (EU) banking sectors between 2007 and 2021 and sets of variables appropriate for clusters of countries into which the 27 countries of the EU are divided. The random forest method is deployed to identify...
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| Format: | Article |
| Language: | English |
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Sciendo
2024-09-01
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| Series: | International Journal of Management and Economics |
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| Online Access: | https://doi.org/10.2478/ijme-2024-0022 |
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| author | Bernardelli Michał Korzeb Zbigniew Niedziółka Paweł |
| author_facet | Bernardelli Michał Korzeb Zbigniew Niedziółka Paweł |
| author_sort | Bernardelli Michał |
| collection | DOAJ |
| description | The study aims to establish patterns of relations between the profitability of the European Union (EU) banking sectors between 2007 and 2021 and sets of variables appropriate for clusters of countries into which the 27 countries of the EU are divided. The random forest method is deployed to identify the factors influencing the value of the return on equity. Shapley additive explanations are exploited to add interpretability to the results. The results show that the sets of variables shaping the profitability of banking sectors in the EU grouped by use of sovereign rating criterion are different. However, there are variables common to all banking sectors. These include cost efficiency and default risk. The study’s novelty lies in the reliance on a broad spectrum of explanatory variables assigned to three groups of factors, reference to all EU countries, and decomposition of the sample to identify similarities among the determinants of profitability. |
| format | Article |
| id | doaj-art-9d0d169898344eea9ae93ce496f070d3 |
| institution | Kabale University |
| issn | 2543-5361 |
| language | English |
| publishDate | 2024-09-01 |
| publisher | Sciendo |
| record_format | Article |
| series | International Journal of Management and Economics |
| spelling | doaj-art-9d0d169898344eea9ae93ce496f070d32025-02-02T15:48:18ZengSciendoInternational Journal of Management and Economics2543-53612024-09-0160427228410.2478/ijme-2024-0022What drives the profitability of banking sectors in the European Union? The machine learning approachBernardelli Michał0Korzeb Zbigniew1Niedziółka Paweł2Department of Management, Economy and Finance, Bialystok University of Technology, Kleosin, PolandCollegium of Economic Analysis, SGH Warsaw School of Economics, Warsaw, PolandCollegium of Socio-Economics, SGH Warsaw School of Economics, Warsaw, PolandThe study aims to establish patterns of relations between the profitability of the European Union (EU) banking sectors between 2007 and 2021 and sets of variables appropriate for clusters of countries into which the 27 countries of the EU are divided. The random forest method is deployed to identify the factors influencing the value of the return on equity. Shapley additive explanations are exploited to add interpretability to the results. The results show that the sets of variables shaping the profitability of banking sectors in the EU grouped by use of sovereign rating criterion are different. However, there are variables common to all banking sectors. These include cost efficiency and default risk. The study’s novelty lies in the reliance on a broad spectrum of explanatory variables assigned to three groups of factors, reference to all EU countries, and decomposition of the sample to identify similarities among the determinants of profitability.https://doi.org/10.2478/ijme-2024-0022banking sectormachine learningprofitabilityrandom forestshapg01g21g30z10 |
| spellingShingle | Bernardelli Michał Korzeb Zbigniew Niedziółka Paweł What drives the profitability of banking sectors in the European Union? The machine learning approach International Journal of Management and Economics banking sector machine learning profitability random forest shap g01 g21 g30 z10 |
| title | What drives the profitability of banking sectors in the European Union? The machine learning approach |
| title_full | What drives the profitability of banking sectors in the European Union? The machine learning approach |
| title_fullStr | What drives the profitability of banking sectors in the European Union? The machine learning approach |
| title_full_unstemmed | What drives the profitability of banking sectors in the European Union? The machine learning approach |
| title_short | What drives the profitability of banking sectors in the European Union? The machine learning approach |
| title_sort | what drives the profitability of banking sectors in the european union the machine learning approach |
| topic | banking sector machine learning profitability random forest shap g01 g21 g30 z10 |
| url | https://doi.org/10.2478/ijme-2024-0022 |
| work_keys_str_mv | AT bernardellimichał whatdrivestheprofitabilityofbankingsectorsintheeuropeanunionthemachinelearningapproach AT korzebzbigniew whatdrivestheprofitabilityofbankingsectorsintheeuropeanunionthemachinelearningapproach AT niedziołkapaweł whatdrivestheprofitabilityofbankingsectorsintheeuropeanunionthemachinelearningapproach |