The Relationship between Financial Performance of Banking Sector and Economic Growth: A Research on EU Countries

Abstract

In this study, the effects of financial performance of banking sector on economic growth have been analyzed. The study covers the data for the period 1996-2017 of European Union countries. In the study in regard to economic growth, GDP growth (annual %); financial performance, bank ROA, bank ROE, bank cost to income ratio (%) and stock market capitalization to GDP (%) have been used. The relationship between financial performance and economic growth have been analyzed through panel data method. The results of the analysis suggest that the bank performance of European Union countries have positive effect on economic growth. A positive and significant relationship has been determined that the ROA, bank cost to income ratio and stock market capitalization and economic growth. EU countries will be able to expedite economic growth by increasing the financial performance of banks.