Determinants of Solvency in Selected CEE Banking Sectors: Does Affiliation with the Financial Conglomerate Matter?

Abstract

The aim of this paper is to describe the development of bank solvency in six selected Central and Eastern European countries (Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Serbia and Slovenia) and to find out if the share of equity in total assets is influenced by the affiliation of banks with financial conglomerate or if other determinants are more important. The data cover the period from 2011 to 2017. The highest level of capital buffers hold Serbian banks, solvency of Croatian and Slovenian banks is below average. The results of the panel data regression analysis showed that the affiliation of banks with financial conglomerate does not statistically significant affect the simplified solvency ratio in these selected CEE countries. Instead, some bank‑specific and macroeconomic factors matter. Especially important is the lagged value of bank solvency. Among other factors, bank profitability and liquidity, quality of its loan portfolio and size of the bank, as well as the economic cycle and price of credit and debt were significant for some countries.

Keywords

• solvency
• financial ratio
• panel data regression analysis
• commercial banks
• financial conglomerates
• banking sector