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ANALYSIS ON THE DETERMINANTS OF CREDIT RISK IN THE EUROPEAN BANKING SECTOR
Authors: Ioan I. TRENCA, Daniela BOZGA
Number of views: 588
The recent financial crisis started in the US in 2007, the main cause being the secured mortgage loans. The
purpose of the empirical research was to study the factors that determine the credit risk, respectively the quality of
the credit portfolio. The analysis was carried out on a unique sample bank-specific data comprised of 70 banking
institutions from 13 European countries (Austria, Belgium, Cyprus, Germany, Greece, Italy, Norway, Poland,
Portugal, Spain, Sweden, Denmark and Switzerland) with high incomes during 2005q1-2011q4. The ratio between
the allowance for the granted credits and the total credits granted were used as a bank-lending indicator. The main
results obtained were that the credit risk’s determinants were the indicator of capital adequacy, GDP, the
unemployment rate, the inflation rate, government debt and the financial crisis. The main estimated equation
includes specific variables of the banking institutions (the accumulated credit risk and the capital adequacy
indicator), macroeconomic variables (GDP, the unemployment rate, the inflation rate, government debt), bank
specific variables (banking concentration) and the control variables (the financial crisis). Compared to the previous
period, the accumulation of the reserves for the credits granted of the total of the credits granted, had a positive
impact on the dependent variable. The borrowing decisions from the previous period define changes at the current
level of the quality of the bank loan portfolio.