This thesis analyzes devolopment of profitabilty and market structure of banking sector in the Czech Republic, Slovakia, Poland and Hungary. Empirical results are consistent with structure-conduct-performance hypothesis, on the other hand efficiency hypothesis seems to be unlikely. These conclusions are furthermore supported by DEA efficiency analysis. Results of non-structural Panzer-Rosse model suggest that during the period under consideration, market outcome was similar to monopolistic competiton. The results of regression analysis reveal that bank-specific variables, share of banking deposits on GDP, GDP growth and interest rates are the main drivers of banking sector profitability.