Abstract
Issues of bank capital management have always been topical for each commercial bank and for bank supervisory institutions. After-effects of the financial crises have encouraged strengthening of capital adequacy requirements and therefore supporting the reasonable risk level. Basel Committee on Banking Supervision adopted a range of guidelines, which promote raising of bank stability and safety, stressing the importance of capital as risk coverage. The aim of the research is the determination of factors influencing bank capital adequacy and assessment of financial strength of capital and especially equity in commercial banks. The subject of this research is focusses on commercial banks of Eastern Europe. Methodologically, research methods as comparison, factors analysis, ratio analysis, charts showing statistic information and others have been used by authors. As the result of the investigation, factors influencing bank capital adequacy have been identified. The most important of these factors is credit risk, which is specially analysed in this research. The obtained results allowed the authors to make a range of conclusions, of which some are: in the period of financial crises most of European commercial banks were operating on the verge of capital adequacy, banks did not have sufficient buffer capital, due to substantial losses during the period of crises capital adequacy was maintained only by the inflow of new share capital and subordinated capital. The authors have provided several suggestions concerning the management of bank capital adequacy to commercial banks.
Highlights
Banking sector in most Eastern Europe countries within the period 2009 to 2012 was loss-making
The obtained results allowed the authors to make a range of conclusions, of which some are: in the period of financial crises most of European commercial banks were operating on the verge of capital adequacy, banks did not have sufficient buffer capital, due to substantial losses during the period of crises capital adequacy was maintained only by the inflow of new share capital and subordinated capital
Assessment of “capital safety margin” in the banking sector of Eastern European countries includes the analysis of complete fulfilment of requirements for establishment of the capital buffer (+ 2.5%) in accordance with Basel III (Figure 4)
Summary
Banking sector in most Eastern Europe countries within the period 2009 to 2012 was loss-making. In the paper “Mergers and Acquisitions: Examples of Best Practice in Europe and Latvia” they concluded that in evaluating decisions on the possibilities for mergers and acquisitions Latvian firms and banks have to be guided by the most important results of this process: possible increases in foreign direct investment and the growth in market share (Saksonova S., Kantāne I., 2016) This will allow banks to increase a capital value and to become more stable and competitive. The analysis of the capital adequacy ratios behavior in the banking sector of Eastern European countries within the period 2006 to 2019 has demonstrated that the strongest and most protected banks during the crisis period were in Czech Republic, Slovakia and Romania Their capital (both Tier 1 and total equity) adequacy within 2007 and 2009 consistently exceeded 10%. If Estonian banking sector somehow stayed afloat by providing a relative adequacy of the capital base, the banks of Lithuania and Latvia were really threatened and hardly covered ever-growing losses during the crisis and post-crisis periods
Sign-in/Register to view highlights & summary 
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call