Cross-Country Roe in Banks and it’s Decomposition

Given large differences in return on equity in the banking sector of individual euro area countries, we look under the surface of this measure and decompose it to its contributing factors: i) profits, ii) total assets and iii) leverage. We find that i) dramatic declines in ROE in stressed countries were driven mostly by losses on the asset side and that ii) CEE countries deleveraging contribution to ROE has helped to maintain a good balance and prepared solid grounds for future sustainable development.