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Bank Capital, Risk and Performance in European Banking: A Case Study on Seven Banking Sectors

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  • Irina Raluca Busuioc Witowschi
  • Florin Alexandru Luca

Abstract

The aim of this paper is to evaluate the way in which capital influences profitability of banks and exposure to risk in seven European countries: Austria, Bulgaria, Greece, Italy, Romania, the Netherlands and Hungary. Based on previous studies, we developed a model of simultaneous equations to analyse the relation between capital, risk and performance. The model includes 68 banks and covers the period between 2006 and 2011. In addition, estimations have been made for the three capital ratios (own capital ratio, tier 1 ratio and capital adequacy ratio) for each country included in this study. The obtained results have revealed the existence of a negative relationship between capital and taken risks and a positive relationship between capital and profitability, as well as between risk and profitability.

Suggested Citation

  • Irina Raluca Busuioc Witowschi & Florin Alexandru Luca, 2016. "Bank Capital, Risk and Performance in European Banking: A Case Study on Seven Banking Sectors," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(2), pages 127-142.
    • Handle: RePEc:prg:jnlpep:v:2016:y:2016:i:2:id:541:p:127-142
    DOI: 10.18267/j.pep.541
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    Cited by:

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    2. repec:cmj:seapas:y:2016:i:11:p:197-201 is not listed on IDEAS
    3. Bayront Y. Rumondor & Pakasa Bary, 2018. "Capital Flows And Risk-Taking Behaviour," Working Papers WP/23/2018, Bank Indonesia.
    4. Syed Moudud-Ul-Huq, 2021. "The Impact of Business Cycle on Banks’ Capital Buffer, Risk and Efficiency: A Dynamic GMM Approach from a Developing Economy," Global Business Review, International Management Institute, vol. 22(4), pages 921-940, August.
    5. Ortal FALKOVITCH, 2020. "Factors That Encourage And Discourage The Adoption Of Online Banking In Israel And Their Effect On Customer Satisfaction, From The Point Of View Of Bank Managers," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 23, pages 137-147, August.
    6. Jelena Andrasic & Nada Milenkovic & Kristina Mijic & Vera Mirovic & Branimir Kalas, 2018. "The Impact of Acquisitions on Profitability: Evidence from the Banking Sector in Serbia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 83-99.
    7. Bayront Yudit Rumondor & Pakasa Bary, 2020. "Capital Flows and Bank Risk-Taking Behavior: Evidence From Indonesia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 33-53.
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    9. Blanka Škrabic Peric, 2018. "Have More Profitable Banks a More or a Less Risky Lending Policy? Empirical Evidence from CEE Countries," Prague Economic Papers, Prague University of Economics and Business, vol. 2018(5), pages 573-587.
    10. Syed Moudud-Ul-Huq, 2019. "Banks’ capital buffers, risk, and efficiency in emerging economies: are they counter-cyclical?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(4), pages 467-492, December.

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    More about this item

    Keywords

    risk; profitability; European banks; capital ratios;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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