The Impact of Electronic Financial Services on the Profitability of the Banking Sector in Kosovo
DOI:
https://doi.org/10.5281/zenodo.17432803Keywords:
Profitability, e-financial services, bank efficiency, banking sector, KosovoAbstract
This study investigates the impact of electronic financial services on the profitability of the banking sector in Kosovo. The investigation is based on the premise that adopting electronic channels enhances operational efficiency, reduces transaction costs, and supports the diversification of revenue sources. A quantitative approach is employed, using monthly time-series data. An index of electronic financial services is constructed from Google Trends, while other indexes capture key dimensions of bank performance. Principal Component Analysis (PCA) is applied to develop the indexes, and their impact on profitability is estimated using Ordinary Least Squares (OLS) regression. The findings indicate that electronic financial services, liquidity, and GDP positively affect bank profitability, while risk negatively affects it. In contrast, market share and loan portfolio size are statistically insignificant. These results offer practical insights for banks and policymakers, highlighting the benefits of investing in electronic capabilities, promoting customer adoption, and safely expanding digital services. By providing a novel assessment of electronic financial services in Kosovo’s transitional banking environment, this study contributes to the broader literature on digital finance and bank performance.
References
Al-Khayyat, Y. T. M., Al-Husseini, B. I. H., Mohammed, M. J., & Sharaf, H. K. (2025). The influence of the global financial crisis on the bank’s profitability: A spatial analysis. Risk Governance & Control: Financial Markets & Institutions, 15(1), 110–118. https://doi.org/10.22495/rgcv15i1p11
Angor, G., Aristei, D., & Gallo, M. (2019). Determinants of banks’ net interest margin: Evidence from the Euro area during the crisis and post-crisis period. Sustainability, 11(14), 3785. https://doi.org/10.3390/su11143785
Boďa, M., & Zimková, E. (2021). Overcoming the loan-to-deposit ratio by a financial intermediation measure: A perspective instrument of financial stability policy. Journal of Policy Modelling, 43(5), 1051–1069. https://doi.org/10.1016/j.jpolmod.2021.03.012
Borroni, M., & Rossi, S. P. (2019). Bank profitability: Measures and determinants. In Banking in Europe: The quest for profitability after the Great Financial Crisis (pp. 1–23). Palgrave Pivo. https://doi.org/10.1007/978-3-030-15013-6_2
Boudt, K., Croux, C., & Dehon, C. (2022). Interpretability of composite indicators based on principal components. Journal of Probability and Statistics, 2022, 1–10. https://doi.org/10.1155/2022/4155384
Carbo-Valverde, S. (2017). Digital financial services: A global perspective. Financial Markets, Institutions & Instruments, 26(4), 223–238. https://doi.org/10.1111/fmii.12092
Central Bank of the Republic of Kosovo. (2024a). Statement of MFIs’ revenues/time series [Statistical report]. https://bqk-kos.org/?id=107
Central Bank of the Republic of Kosovo. (2025). Financial stability report (No. 21). https://bqk-kos.org/wp-content/uploads/2025/08/CBK_FSR_21.pdf
Cucinelli, D. (2013). The determinants of bank liquidity risk within the context of the Euro area. Risk Governance & Control: Financial Markets & Institutions, 3(3), 42–50. https://doi.org/10.22495/rgcv3i3art5
Deloitte. (2018). Dancing with disruption: Have you mastered the steps? Deloitte.
Di Febo, E., & Angelini, E. (2022). Internet banking, age, gender, and performance: Which connections in Italy? Bank i Kredyt, 53(3), 295–324. https://ideas.repec.org/a/nbp/nbpbik/v53y2022i3p295-324.html
Dong, J., Yin, L., Liu, X., Hu, M., Li, X., & Liu, L. (2020). Impact of internet finance on the performance of commercial banks in China. International Review of Financial Analysis, 72, 101579. https://doi.org/10.1016/j.irfa.2020.101579
Hernando, I., & Nieto, M. J. (2007). Is the Internet delivery channel changing banks’ performance? The case of Spanish banks. Journal of Banking & Finance, 31(4), 1083–1099. https://doi.org/10.1016/j.jbankfin.2006.10.011
Lee, C. C., & Ngo, T. (2020). The determinants of bank profitability: A cross-country analysis. Central Bank Review, 20(2), 65–73. https://doi.org/10.1016/j.cbrev.2020.04.001
Lee, J., Lee, H., & Lee, J. (2021). Does fintech innovation improve bank efficiency? Evidence from China’s banking industry. International Review of Economics & Finance, 74, 468–483. https://doi.org/10.1016/j.iref.2021.03.009
Mazziotta, M., & Pareto, A. (2016). On the construction of composite indices by principal components analysis. Rivista Italiana di Economia Demografia e Statistica, 70(2), 103–109.
Nguyen, T. T. H. (2021). Measuring financial inclusion: A composite FI index for the developing countries. Journal of Economics and Development, 23(1), 204–222. https://doi.org/10.1108/JED-03-2020-0027
Onay, C., & Özsöz, E. (2013). The impact of internet banking on brick-and-mortar branches: The case of Turkey. Journal of Financial Services Research, 44(2), 187–204. https://doi.org/10.1007/s10693-011-0124-9
Psaila, A. (2019). The impact of non-performing loans on the profitability of listed commercial banks in the Euro-Mediterranean area (2013–2017). International Journal of Economics, Business and Accounting Research, 3(2), 166–196. https://doi.org/10.35808/ijeba/338
Qehaja-Keka, M., Keka, M., & Gashi, P. (2023). Bank profitability determinants: Evidence from Kosovo and Albania. Journal of Liberty and International Affairs, 9(1), 297–311. https://doi.org/10.47305/JLIA2392370qk
Rekik, Y., & Kalai, N. B. (2018). Determinants of banks’ profitability and efficiency: Empirical evidence from a sample of banking systems. Journal of Banking and Financial Economics, 2(1), 5–23.
Tölö, E. (2021). How much do non-performing loans hinder loan growth in Europe? European Economic Review, 133, 103681. https://doi.org/10.1016/j.euroecorev.2021.103773
Topalli, A., & Molishti, V. (2025, March 20). Digital transformation of the Albanian banking system: The results of the Albanian banking sector digitalization survey 2024. SUERF Policy Notes and Briefs. https://www.suerf.org
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Besmir Çollaku
This work is licensed under a Creative Commons Attribution 4.0 International License.