Abstract:
We provide new evidence on the effects of adopting a common European currency on banks' profitability in the Central and Eastern Europe (CEE) region. We construct a panel of 1033 bank-year observations across 11 countries between 2006 and 2020. Our results suggest that the effect of the eurozone on the banks' profitability is statistically not significant over a longer period but that the euro exerts downward pressure on banks' profits when economic conditions are stable. Additionally, we contribute to the existing literature on banks' profitability determinants in the CEE region and confirm that capitalization and bank size have positive, while liquidity and loans-to-assets ratio have a negative influence on profitability.