Why are (or were) Spanish banks so profitable

This paper analyzes empirically the factors that determine the profitability of Spanish banks for the period of 1999-2009. The results obtained by applying the system-GMM estimator to a large sample of Spanish banks indicate that higher bank profitability during these years is associated with a larger percentage of loans in total assets, a higher proportion of customer deposits, better efficiency, and a lower credit risk. In addition, higher capital ratios also increase the bank�s return, although this finding applies only when using return on assets (ROA) as the profitability measure. We find no evidence of either economies or diseconomies of scale or scope in the Spanish banking sector. On the other hand, all industry and macroeconomic determinants, with the exception of interest rate, affect bank profitability in the anticipated ways. Finally, our study reveals differences in the performance of commercial and savings banks.