This dissertation was written as part of the Executive MBA at the International Hellenic University. The aim of this study is twofold. On the one hand, it describes, using ratio analysis, certain aspects of the German Banking system, over the period 2001-2015, and on the other hand, it examines, the determinants of bank profitability (for all types of German banks) over the aforementioned period. A unique feature of the German banking system has to do with its “three-pillared” structure, as it comprises of three types of banking institutions, namely (a) private commercial banks, (b) savings banks, and (c) cooperative banks. Despite the onset of the recent fiscal crisis of 2007/2008, and the somewhat significant decline in the banks’ efficiency (captured by a rising cost-to-income ratio), the profitability of the German Banking system remained almost intact, as it was reflected by Return on (Average) Assets. ROA and was not severely affected, as the annual average decline over the period under examination was a mere 0.91%. In addition, the German banking system came out of crisis with a larger capital adequacy, as the relevant ratio increased over the period under examination, and a higher liquidity, as this is captured by the ratio of bank credit to total deposits. To measure bank performance, this study makes use of the banks’ Return on Equity (ROE) on a pretax basis. The empirical evidence showed that banking factors such as liquidity risk (ratio of bank credit to bank deposits), capital adequacy (ratio of bank capital to total assets), efficiency (ratio of operating income to cost), and the 5-bank concentration ratio have a positive effect on bank profitability.
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