The Impact of Off-Balance Sheet Items on European Commercial Banks’ Credit Risk and a Comparison between Northern and Southern Europe
This dissertation was written as part of the MSc in Banking and Finance at the International Hellenic University. This study investigates the impact of off-balance sheet items on the credit risk across European commercial banks. Based on a sample of 681 banks over the period 2004-2013, our results show that the issuing of these structures does not imply deterioration in banks’ credit risk. On the contrary they have a positive effect, which gives us the incentive to argue that there may be other reasons European banks engage in off-balance sheet activities, such as regulatory capital requirements or performance improvement as suggested by Schuetz (2011) for US banks. We also perform a comparison between Northern and Southern Europe and our findings suggest that off-balance sheet items do not have a significant effect on the credit risk of banks in Southern Europe. Our results also suggest that regulatory capital requirements may lead banks with high capital ratios to invest in riskier activities (Kim and Santomero, 1988) and macroeconomic factors, such as inflation, give us mixed evidences between Northern and Southern Europe. I would like to acknowledge my supervisor Dr. Stergios Leventis for his useful and important assistance and guidance, my wife and my parents for their great psychological support and my newborn son for giving me strength and motive to move on with a new and better life.