This paper examines the impact of bank characteristics as well as macroeconomic and financial structure variables on the performance of the Macao banking industry. Our results show that the capital strength of a bank is of paramount importance in affecting its profitability. A well-capitalised bank is perceived to be of lower risk and such an advantage will be translated into higher profitability. On the other hand, the asset quality, as measured by the loan-loss provisions, affects the performance of banks adversely. In addition, banks with a large retail deposit-taking network do not achieve a level of profitability higher than those with a smaller network. Finally, with regard to macroeconomic variables, only the rate of inflation exhibits a significant relationship with banks’ performance.