Geopolitical Risk and Bank Profitability: Evidence from European Countries (2013-2023)

Abstract

This thesis delves into how geopolitical risk (GPR) affects the profits of banks in the Eurozone, an area known for its unity and political variety. The main question looks at how threats and actions on a geopolitical level impact bank profitability focusing on metrics like return on assets, return on equity and net interest margin. By utilizing a comprehensive dataset and robust methodological framework, the study differentiates the effects of geopolitical threats (GPR_T) from geopolitical actions (GPR_A) on bank profitability. The results show that threats have a significant influence on profitability metrics than actions leading to higher ROA, ROE and positively impacting NIM. This indicates that banks adjust their strategies in response to perceived threats to minimize risks. These findings are valuable for policymakers, investors, and bank executives as they navigate the complexities of the financial environment, offering deeper insights into how geopolitical risk influences bank profitability.