ANALYSIS OF BANK CAPITALISATION LEVELS OF EUROPEAN COUNTRIES

Abstract

The capitalization of a bank is the cornerstone of financial stability, risk management, compliance with regulatory requirements, and the growth of the banking sector. Maintaining an adequate level of capitalization is crucial for protecting depositors' interests, fostering investor trust and innovation, as well as promoting sustainable economic development. The aim of the research is to analyze the capitalization indicators of European banks from 2010 to 2022 to assess the financial strength and stability of their banking sectors. The calculations were based on a dataset including key capitalization indicators such as return on assets, return on equity, non-performing loans, capital adequacy ratio, number of bank branches, regulatory capital to risk-weighted assets ratio, cost-to-income ratio, and depth of financial services penetration in European countries with different income levels (high, upper middle and lower middle-income). The research employed methods such as grouping countries by income level, comparing and summarizing trends in capitalization indicators, time series analysis, and calculating descriptive statistics to identify the most volatile capitalization indicators among European countries' banks. StataSE 18 software was used for empirical calculations. The analysis underscores significant differences in capitalization ratios among European countries, reflecting differences in economic structures, banking systems, regulatory regimes, and risk management practices. The most variable descriptive statistical data were the number of bank branches (standard deviation 60,3) and the depth of financial services penetration (standard deviation 64,7%). Ukraine and Cyprus were among the highest in terms of non-performing loans, return on assets, and equity (negative peaks in 2016 and 2011, respectively). Leading European countries in terms of bank capitalization levels were identified as Germany, Norway, Finland, Sweden, and Switzerland, which are countries with high income levels per capita. The results of this study provide valuable information for policymakers, regulators, investors, and stakeholders to assess the strengths and weaknesses and the challenges facing European banks in maintaining adequate capitalization.