National Australia Bank has ramped up its involvement with Europe's beleaguered banking system, despite rising concerns that leading French and German banks will need to recapitalise ahead of another wave of expected losses on their frazzled assets in southern Europe.In the six months to the end of September, NAB boosted total credit exposure to European banks by 49 per cent, to A$27.7 billion from $18.6 billion.The bank disclosed its heightened exposure to European financial institutions in its quarterly risk and capital report published yesterday.The worsening sovereign debt crisis sweeping Europe has intensified and there are worries that big banks such as BNP Paribas will be forced to undertake large capital raisings to strengthen their balance sheets. Société Générale and Commerzbank are two other large banks whose shares have dived this week amid the latest wave of investor unease.NAB's spokesman, Brian Walsh, last night refused to give a breakdown of the credit ratings of the European banks the group was exposed to, saying only that most were "systemically important financial institutions".  Nor was he able to provide a split between the group's direct lending and indirect exposures through derivatives trading and repurchase deals."We have no direct exposure to Greece," he said."The direct exposure to PIGS represents less than 0.2 per cent of the total group exposures."The European bank exposures are predominantly to the systemically important financial institutions and are well collateralised."With Greece out of the picture, NAB's exposure to Portugal, Italy and Spain (the PIGS) stood at up to $1.5 billion at the end of the quarter. This represents 0.2 per cent of total group credit risk, which stood at $731 billion.NAB owns one domestic bank in Britain - Clydesdale Bank - with £45 billion in assets.The renewed interest in European banks marks a shift in NAB's risk appetite.For most of last year NAB managed down its credit risks associated with European banks after its exposure reached $31.5 billion in March 2010. In September 2009, the bank's largest individual cross-border exposure was a reverse repurchase agreement with an unnamed financial institution that had put up $12.7 billion of collateral in the form of Italian government bonds.NAB's appetite for more credit risk in Europe is not shared by other Australian banks. Both Westpac and Commonwealth Bank have continued to reduce their exposures to international banks this year.According to its latest quarterly report, Westpac has a relatively modest exposure of $52 million to European banks - down from $329 million on March 31.CBA has not disclosed a figure for its exposure to European banks, but its total credit risk with banks outside of Australia and New Zealand fell $500 million to $20.9 billion in the six months to the end of June. Notwithstanding, local investment analysts are continuing to focus on the likely implications of transactions between CBA and the Swiss-based UBS.