International Banking and Country Risk Calculus: The Experience of Greek Banks in Southeastern Europe

Panayotis Kapopoulos () and Sophia Lazaretou ()

Comparative Economic Studies, 2011, vol. 53, issue 4, 557-574

Abstract: Between 1996 and 2003, emerging market economies experienced major financial crises with both high frequency and severity. Since then and until the recent bout of financial turbulence, the drop off in the frequency of such crises has been marked. However, the absence of a crisis episode does not mean that there are not some potential risks looking forward. In this paper, we use the theoretical framework of international banking and the country risk calculus in an effort to study the experience of Greek banks in Southeastern Europe over the past decade. This experience is the product of two factors, that is, value at risk and the probability of a sovereign risk event. We find that lending concentration is high. Using the capital asset pricing model and implementing a two-step identification process, we detect a diversification effect of this concentration risk.

Date: 2011
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