Recent evolution and trends in the EU banking sector

Over the last years, competition in the European banking sector has intensified considerably. The following factors have been decisive for that evolution: the liberalisation of the European financial sector, technological progress as well as an amplified diversification of savings and assets.The introduction of the Euro goes along with an accelerated integration of the market for financial services and leads to a further increase in competition and structural changes in the banking sector (Deutsche Bundesbank, 1999, Galati and Tsatsaronis, 2001). However, timeframe and depth of this structural change vary noticeably between the different sections of European banking. While the money market and the market for wholesale products (wholesale banking) already form a common European market, there still is an extensive segmentation of national markets for retail products (retail banking). Responsible for this low degree of integration in retail markets are a number ofnatural barriers, such as language or culture, as well aspolitically inducedmarket accessbarrierssuch as regulations or taxation, which make cross-border trade in financial services more difficult (ECB, 1999a). Further deregulation and harmonisation towards an integrated European retail market are suitable to increase customer benefits by fostering product diversification and lower prices.

The aim of this article is to analyze the impact of the Basel III agreement on the European Union's banking sector. This article is divided into three parts. The first part is introductory, which describes the basics of the mortgage crisis in the USA, the causes of its beginning and its development into the global financial crisis. The second part deals with the reaction of the G20 countries to the financial crisis itself in the form of the implementation of the Basel III Agreement and the impact of this agreement on the European banking sector. This chapter then deals with quantitative cash release and negative interest rates, as it is a consequence of the Basel III Agreement. The Basel III Agreement had a significant impact on the monetary policy of the European Central Bank and its impact on business in the countries of the European Union. We deal with this issue at the end of this section. In the third part of this article, in its conclusion, we summarized the key findings of this article and defined the impact of the Basel III Agreement on the European banking sector.

The subject of the research is trends in the implementation of digital technologies in the banking sector. The relevance of the paper is due to the objective processes of global digital intervention of technologies in all spheres of human life and society. The research aims to identify, systematize and generalize key trends and regulations in the development of digital business models of banking services in Industry 4.0. For the first time, the authors identified and systematized modern trends and regulations in the development of digital business models of banking services in Industry 4.0, offered their own conceptual vision of the concept of “digital business model of banking services”. The authors apply general scientific, philosophical, analytical, statistical, problem chronological and historical-genetic methods, as well as methods of expert assessments. The article summarizes the main stages of the evolution of business models of the banking sector, reveals substantive and methodological differences between traditional remote banking services and digital banking, highlights the main business models for organizing digital banking; provides up-to-date data on the level of development of digital banking in the main geographic zones of the world; shows the dynamics and key areas of investment in the fintech industry in 2014–2019 and provides a critical analysis of their conditions; identifies problematic aspects of the development of digital business models of banking; describes the functionality of the main digital business models of Russian banks with the author’s assessment of their capabilities and examples of their use in Russian practice. The authors conclude that the main drivers of digitalization of the banking sector are stable growth of non-cash payments in the world and in Russia; stable growth of the global digital banking market; the impact of the COVID-19 pandemic on the active demand of consumers of remote financial services; increased competition in the retail banking market; and a significant decrease in margins for traditional banking products. Identification and systematization of trends and regulations in the implementation of digital business models of banking services can form the basis for further analysis of the specifics of digitalization and personalization of digital banking in Industry 4.0 for the sustainable socio-economic development of the country in terms of possible advantages and threats to the security of financial resources and personal data of customers.

The article analyzes the peculiarity of the development of banking activity in EU countries as one of the elements of financial stability in the conditions of harmonization and joint regulation. In the article is shown impact of digital transformation, modern strategies and banking business models on the need to adapt the banking sector to new conditions. The leading role of the banking sector in stimulating long-term financing is determined, as the bank-ing sector affects the economic and social development of European countries. The banking sector is one of the factors supporting the economic growth of European countries and the EU in general. The types of banks are disclosed, where a significant role is assigned to the new wave of their development –digital banks. The place and role of state banks and development institutions, investment banks is revealed, special attention is paid to digital banks, which have significantly changed the banking industry. It was noted that the market of digital banks has a positive trend towards their growth in the EU. Emphasis is placed on the fact that technologies are changing the development of banking activity in European countries and the banking sec-tor. The trend of consolidation and concentration due to bank mergers and acquisitions is high-lighted, which is the most visible sign of this process. It is noted that the quality of banking services today has become one of the strategic changes in competition on the European mar-ket. The indicators of the development of the banking sector were analyzed, and their trends were determined, namely, the decrease in the number of banks, employees in credit organiza-tions, and the decrease in branches and subsidiaries of credit institutions in the EU. The author focused heavily on deposits in EU banks as a share of total bank assets, based on which an analysis of the dynamics of changes in the total volume of deposits in EU banks was carried out with further analysis of trend lines –using linear, logarithmic, polynomial and power func-tions. The author has forecasted deposits in EU banks according to the most likely scenario of the development of economic events, pessimistic and optimistic. It has been proven that trends have a gradual upward trend for the future

The crises of 2002 and 2008 have raised the issue of banking sector’s ranking system efficiency. The credit rating agencies (CRAs) are crucial for the modern financial market. The impact that the ratings have is indisputable. This paper is seeking to find the factors that affect the ratings and to create a prediction mechanism. The originality of the paper is based on the fact that it utilizes a number of different variables (ownership status, corporate governance, etc.), and the hypothesis is innovative because it addresses the issue of divergence–convergence of the European banking sector and its respective ratings. In order to do that, all ranking evaluations have been matched with a numerical value (i.e., AAA has value 24, A- has value 18, and B- has value 9). A good grade is considered to be above A- (value 18) and a bad grade below that number. Seven groups of indicators are examined: performance, size, ownership, corporate governance, capital adequacy or capital structure, sovereign–country ranking, and loan growth. Three econometric methods (probit, logit, and OLS) have been used to create a system that predicts the rating grade. The independent variable is binary (good grade = 1/bad grade = 0). Inactive banks have been excluded from the sample. This paper provides a model for predicting the factors that affect the grade of the bank rating. Many of the factors, which other studies have pointed out, are found to be statistically important in our models, too. This paper contributes to the literature by establishing a unique framework for the European banks and identifying the factors that affect the rating grade by giving an answer to the issue of an isomorphic banking sector in Europe. It shows that there are significant differences among the various geographical regions [variables cgsys, ns, European countries with major economic problems or those under stress (Portugal, Ireland, Spain, and Greece)].

КОНКУРЕНТОСПРОМОЖНІСТЬ БАНКІВСЬКОГО СЕКТОРУ УКРАЇНИ: СУТНІСТЬ ТА МЕХАНІЗМ ФОРМУВАННЯ

Research purpose. The development of financial technology sector ( fintech ) poses a challenge for traditional financial institutions. Therefore, it is important to analyze not only how financial technologies can change, but also how the fintech sector affects banks and their profitability. The aim of the paper is to analyze the possibilities for the development of financial technology sector and quantitatively evaluate its impact on the banking sector’s profitability in Lithuania. Design / Methodology / Approach. After the analysis of academic literature and statistical data, the authors used expert evaluation method in order to identify development opportunities of fintech in Lithuania and correlation-regression analysis was applied to evaluate the impact of fintech on the profitability of the Lithuanian banking sector. Findings . According to the results of expert assessment research, Lithuania possesses favorable conditions for fintech enterprises to enter the Lithuanian finance market; it is expected that this sector will continue to rapidly expand mostly in payments and banking business models. Correlation-regression analysis showed that fintech indicators has an effect on the banking sector’s profitability but the effect in not very significant. The significance of the connection is lower because banking sector adapts technologies and is influenced by fintech from inside and outside the environment. Originality / Value / Practical implications. The fintech sector in Lithuania is still new and so far very little researched. The outcomes of this research have expanded the scope of research of the Lithuanian fintech sector. The obtained results would be useful and relevant to (i) the government sector to manage risks and ensure stability in the financial sector; (ii) financial sector entities to monitor possible developments and prepare them accordingly; and (iii) banking sector to analyze the impact of technology and fintech entities on them and take strategic decisions in this regard.

Purpose: The study aims to summarize the level of knowledge and to correlate published material regarding banking business models. A second aim is to answer the question if European countries have different banking business models, especially in countries that have adopted euro currency and countries that have not adopted it yet. Design/Methodology/Approach: We consider the Liikanen report (2012) and we performed a literature review ex-ante and ex-post above this report using selective criteria. In addition we have completed a study case comparing performance and efficiency indicators (ROE, ROA, and CIR) and profit sources (Net interest income, total operating income, net fee and commission to total operating income, trading income to total operating income) of the banking system from European Union countries correlating the results with the business model terminology. Findings: From the literature review, we observe that it is a consentient view that the retail banking business model, based on traditional funding, is one of the most reliable business models during a financial crisis. Moreover, the reviewed studies empirically proved that the banks that migrate to retail business model from another business model improved their efficiency and profitability. We concluded that the countries that are out of the monetary union and are in the emerging economy stage along with the countries that are in the cluster of late monetary union have retail banking models and are the most efficient. Practical Implications: An analytical appraisal of the published material completed with the practical study case regarding EU banking systems is paramount for a future quantitative research study. Originality/Value: The literature review is valuable both for future researches and for managerial perspective regarding banking business model appraisal.

This study explores the impact of Environmental, Social, and Governance (ESG) practices, financial inclusion, and globalization on financial stability across BRICS-T economies (Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates) over the period 2000–2024. As these emerging economies deepen their integration into the global financial architecture, identifying the drivers of financial stability becomes crucial for policymakers, investors, and regulatory authorities. Employing a panel data framework, the study utilizes Panel-Corrected Standard Errors (PCSE) regression and Principal Component Analysis (PCA) to examine both the individual and combined effects of ESG performance, financial inclusion, and globalization on financial system stability. The empirical findings indicate that ESG practices and financial inclusion have a significant and positive impact on enhancing financial stability. Globalization also demonstrates a positive influence, albeit with varying effects depending on domestic institutional and regulatory conditions. A series of robustness tests confirms the reliability and consistency of the core results. This research contributes to the existing literature by providing novel empirical evidence on the synergistic roles of sustainability, inclusiveness, and global integration in shaping financial stability in emerging markets. The findings offer valuable policy implications for strengthening financial resilience and promoting sustainable economic growth across the BRICS-T region.

The global financial crisis, sovereign debt crisis, Covid-19, and the invasion in Ukraine highlighted the need to optimise the production processes in banking sectors in Europe. Data Development Analysis (DEA) is a method used to evaluate the efficiency of production units and to benchmark them. It is an important part of analysing and managing the production processes. The contribution attempts to measure and compare technical efficiency scores of 26 European banking systems in 2020 and 2021 by using Network-Data Envelpment Aanalysis (N-DEA), specifically the two-stage slacked-based model (SBM) by Kaoru Tone and Miki Tsutsui (2009). The methodology of NSBM-DEA allows us to assess the efficiency scores of two sub-processes: the deposit collection process and the intermediation process that reflects the use of deposits for earning assets (loans and purchased bonds). Therefore, by NSBM-DEA the deposit collection efficiency, the intermediation proces efficiency and its overall technical efficiency can be gained. Most banking systems in Europe reveal a large inefficiency in collection of deposits and higher efficiency in intermediation of the deposits into earning assets. Our findings show that in 2020 and 2021 only 2 out of 26 European banking sectors were technically efficient in the deposit collection phase, namely Latvia and Malta. In the intermediation phase, the only France was almost technicaly efficient (99.9% in 2020 and in 2021 as well). As to the overall technical efficiency, as the best overal efficiency was reached by the banking systems of France and Germany. The result of our contribution is benefitial to policymakers, regulators, or economists that must assess the performance of the entire banking sectors. The deeper integration of the banking sectors through initiatives like the BankingUnion is inevitable.

Financial inclusion is a banking instrument that plays an important role in financial system stability through access and financial services. To improve financial performance, technology integration is now an interesting issue. This study aims to determine the role of fintech (financial technology) and other financial inclusion instruments such as MSME credit in influencing the stability of the Indonesian financial system. Error Correction Model (ECM) estimation is used to determine the long and short term effects through cointegration values ??between independent variables in influencing the dependent variable. The results of the analysis show that the number of bank branches has a significant long-term influence on financial stability through NPL performance, so direct investment directed at the banking sector also has a significant influence on financial system stability in the long run. However, fintech instruments such as ATMs and e-money have no significant effect on financial system stability. This condition was motivated by the limited reach of fintech development in the financial sector, especially for the unbankable community

Defining the Factors of Fitch Rankings in the European Banking Sector

The repeated waves of the global financial crisis have impacted financial industry stability, especially commercial banks. Resultantly, banking stakeholders have taken steps to enhance the stability of these institutions. Diversification is considered effective in resolving the effects of the crisis. In this regard, a shift towards non-traditional revenue sources acts to enhance resilience. Bank size is important in shaping the relationship between diversification and financial stability. Previous literature has documented enough evidence on bank size and stability to show high resilience for large banks. Islamic banks are not as large as conventional banks, whether their resilience is equal to conventional banks? Using panel data from the banking sector, this study determines the impact of diversification on banking stability regarding bank size. The study results approve the full mediation of bank size on diversification and financial stability relations. Further, Islamic banking is found to be as resilient as conventional banking in the sample countries.

The article is devoted to the assessment of financial risks of the banking sector, their impact on the activity of banks and their minimization in conditions of economic instability. The banking sector is a key link that ensures the development of the financial system, but banking activity is risky. Therefore, it is important to study banking risks and ways to minimize them in order to increase the efficiency and stability of the banking system. The article provides a classification of banking risks in accordance with domestic literature. Factors due to which banking institutions are exposed to risks are reflected. Financial risks of the banking sector affect the net profit, capital of the bank. Therefore, the impact of risks on the financial stability and efficiency of Ukrainian banks was analyzed. The bank's regulatory capital is one of the most important indicators of its activity, the main purpose of which is to cover the negative consequences of various risks. During the entire studied period, there is a tendency to increase this indicator, which is positive. Due to external risks, namely the difficult military and economic situation, the profit of Ukrainian banks decreased. The credit risk, which is one of the most significant in banking activity, is characterized. The causes of credit risk in banking are given. The dynamics of the assets of Ukrainian banks, the volumes of loans granted, were studied. It was concluded that in modern conditions of banking activity, there is a slight slowdown in lending to the population and an increase in the volume of loans granted to business entities. To reduce credit risks, commercial banks use various methods to protect against credit risk: diversification, limiting, insurance, risk distribution. The banking sector cannot exist without risk, so it is necessary to look for ways to minimize them. Minimizing the level of financial risks in the banking sector involves the implementation of risk management measures and methods. Measures to minimize banking risks include preventive and protective measures. Banking risk management methods include: methods of avoiding and accepting banking risks. The article reflects the peculiarities of these measures and methods. Keywords: financial risks, banking sector, bank profit, credit risk, bank assets, bank risk minimization.

PurposeClimate change poses effect on banking sector’s risks and profitability through adaptation of green technology. This study aims to incorporates green technology adaptation in three sectors: green banking, green entrepreneurial innovation (EI) and green human resource (HR), in a model of bank’s performance. And determines the impact of climate change on bank risk and profitability.Design/methodology/approachAn assessment of profitability and risk profile of commercial banks is done for 27 European countries for 2013–2022, employing a two-step difference system-generalized method of moments estimation technique with a moderate effect of climate change by including interaction between climate change and green technology adaptation.FindingsThe results indicate that green banking increases profitability, reduces credit risk and increases liquidity risk. The results also show that green human resource increases profitability and becomes a source of credit and liquidity risks for the banks. Green EI increases credit risk and liquidity risk, while the effects of green EI on profitability vary with the use of two proxies: Green patents increase profitability and environment, social and corporate governance (ESG) scores decrease profitability.Practical implicationsSupportive government initiatives, including subsidies and tax rebates to green borrowers, may take the burden of green transition off the banking sector.Originality/valueThis paper observes the impact of green technology adaptation in three sectors: banks, EI and HR, moderated by climate change, adding substantially to the existing literature in conceptual framework and methodology.