Decoding the Link of Climate Risk and Banking Stability: An Analysis Through the Lens of Climate Uncertainty and Banking Regulation During the Pre- and Post-Paris Accord

This study uses a dataset of conventional banks from 2010 to 2022 to investigate the moderating effect of board characteristics (BC) on the relationship between corporate social responsibility (CSR) and bank stability in the MENA region. Bank stability is measured using the Z-ROA index, which captures a bank’s ability to withstand financial shocks. The study addresses endogeneity and heterogeneity concerns using the system generalized method of moments (SGMM), with diagnostic tests confirming the validity of instruments and the absence of second-order autocorrelation. Three main conclusions are presented. First, CSR has a major detrimental impact on bank stability, indicating that when poorly managed or misaligned with strategic objectives, CSR initiatives may weaken financial resilience. Second, board attributes such as independence, diversity, and experience have a positive impact on bank stability, highlighting the importance of sound governance in ensuring prudent financial management. Third, the interaction between CSR and board characteristics exerts a positive and significant influence on bank stability, suggesting that well-structured boards can enhance the strategic value of CSR initiatives. As a robustness check, the study re-estimates the model using non-performing loans (NPLs) as an alternative measure of bank stability. The results remain consistent with the baseline findings, confirming the robustness and credibility of the conclusions. CSR continues to show a positive association with NPLs, while board characteristics and their interaction with CSR maintain negative and significant effects. These findings reinforce that effective board governance can transform CSR practices into stability-enhancing strategies. For policymakers and banking executives seeking to integrate sustainability into governance frameworks, the results underscore the crucial role of corporate governance in translating CSR efforts into tangible stability outcomes. The study calls for greater regulatory focus on board structures to maximize the stability benefits of CSR in the banking sector, contributing to the growing body of research on CSR and financial stability in developing economies.

PurposeA recent literature has documented the real effect of Trade Policy Uncertainty (TPU) on trade, stock markets and unemployment; however, there is no specific study that has examined how trade uncertainty influences banking sector stability. In this quest, this study aims to bridge this gap by examining the impact of TPU in the USA and China on the stability of the Indian banking sector. Additionally, the study aims to assess the moderating influence of banking regulation and supervision on the aforementioned relationship.Design/methodology/approachTo quantify the above objectives, the study uses a robust set of econometric estimates, i.e. system generalised method of moments (Sys-GMM), fixed effect model and pair-wise Granger causality test on the alternative proxies of banking stability from 2000 to 2023.FindingsThe empirical estimates validate that TPU has a negative impact on the Indian banking stability. Moreover, the impact of the USA. TPU is much more significant on the Indian banking sector’s stability in comparison to the Chinese TPU. The empirical model further suggests that banking regulation and supervision moderate the negative influence of trade uncertainties on the Indian banking sector’s stability and assist in improving it. Finally, the pairwise causality test confirms a unidirectional causal relationship between the TPU in the USA and China and the stability of the Indian banking sector, thereby validating the transmission effect of trade uncertainty on this sector.Originality/valueTo the best of the author’s study, this study is original and offers useful policy recommendations for understanding the implications of trade uncertainty for banking stability. The study also offers insight to comprehend the role of banking regulation and compliance in mitigating the adverse repercussion of trade uncertainties on the banking sector’s stability.

This paper analyzed the effects of bank-specific and bank-risk drivers on bank stability as measured by non-performing loans(NPL) of commercial banks in Bangladesh from 2011 to 2021.This study used panel linear regression, and panel corrected standard error (PCSEs) to estimate the model. The main objective of the study was to analysed the effects of bank specific and bank risk on bank stability of conventional banks in Bangladesh. Capital adequacy, asset quality, income diversification, bank competition, managerial efficiency, and profitability (ROE) are used as proxies for bank-specific and liquidity risk; Sensitivity to marketing risk is used as proxies for bank risk, while control variable is used as bank size and non-performing loan (NPL) are used as a proxy for measurement of bank stability. The main results show that capital adequacy and profitability (ROE) are negative, but asset quality, income diversification, bank competition, and managerial efficiency are positively related to the NPL. The results further evaluate those determinants of bank risk, liquidity risk, and marketing risk have a positive impact on the NPL. The control variable bank size has a negative impact on the NPL. Based on our results, authorities in Bangladesh may develop rules for managing operations and ensuring bank stability as measured by NPLs.

Empirical Analysis of Post-2009 Crisis Interventions on the Stability of Banks

This study contributes to the current debate on the downsides and benefits of revenue diversification. Diversification may affect banks when they invest in riskier activities with lower returns, while they benefit from diversified activities that are less risky but have higher returns. The study offers extended implications in the empirical literature using a different measure of revenue diversification from an emerging market perspective. The study uses recent financial data from 26 Malaysian and Nigerian banks for the period 2009–2017, totaling 234 observations. The GMM estimation technique is employed to test the relationship. The results show that revenue diversification – non-interest income/gross revenue ratio (NII), fee and commission income/revenue ratio (NII1), and non-interest income/total assets ratio (NIITA) – significantly affect the firm value and stability of Nigerian banks. Liquidity, administrative expenses, net interest margin (NIM), non-performing loans (NPL), size, GDP growth rate and inflation also affect the firm value and stability of a bank. For Malaysian banks, diversification variables do not significantly affect firm value of a bank, while liquidity, administrative expenses, NIM and size significantly affect firm value. Diversification (NII and NIITA), liquidity, administrative expenses, NIM, NPL, size, GDP growth and inflation rate has a significant impact on the stability of Malaysian banks. The study concludes that revenue diversification affects both the firm value and stability of banks, and to achieve sound financial stability, banks that focus on interest-generating activities may diversify into non-interest-generating activities.

This study aims to examine the impact of market concentration, internal bank characteristics, and selected macroeconomic variables on the stability of Indonesia's banking sector from 2015 to 2022, with a focus on the concentration-fragility and concentration-stability hypotheses. The research employs a sample of 47 commercial banks, including both conventional and Islamic banks, and uses the System Generalized Method of Moments (Sys-GMM) for empirical analysis. The results support the concentration-fragility hypothesis, indicating that increased market concentration negatively affects financial stability. Additionally, the study finds that lagged bank stability, profitability (ROA), capital adequacy (ETA), and operational efficiency (CIR) significantly contribute to current stability, while high Non-Performing Loans (NPLs) positively impact stability when risk management practices are effective. The findings are based on data from 2015 to 2022 and may not fully capture the long-term effects of market concentration on bank stability. Future studies should explore other emerging factors affecting banking stability. The study provides valuable insights for policymakers by emphasising the importance of regulatory frameworks that foster competition and strengthen internal controls to mitigate systemic risks.

This study investigates the relationship between digital financial inclusion (DFI), the digital economy (DE), and bank stability across 33 Asian economies from 2010 to 2022. Using Z-score (ZS) and Non-Performing Loans (NPLs) as measures of stability, the analysis employs Generalized Method of Moments (GMM), Generalized Least Squares (GLS), and Panel-Corrected Standard Error (PCSE) models. The findings show that DFI negatively impacts ZS and increases NPLs, indicating higher risks associated with financial inclusion. Conversely, DE positively affects ZS, enhancing bank stability, although its effect on NPLs is minimal. These results highlight the double-edged nature of DFI and the stabilizing role of DE in the banking sector. Policymakers must balance efforts to promote DFI with measures to manage associated risks, such as improving credit assessment tools and strengthening digital infrastructure. This study contributes to understanding the dynamics of digital financial transformation and its implications for banking risk in developing economies.

The study examined the impact of credit risk management on deposit money banks stability and the moderating role of corporate governance. The study period spanned 11 years (2009-2019) and twelve (12) deposit money banks were taken as sample for the study. Annual data from sampled banks were subjected to various statistical and empirical tests. The pooled model, random effect (REM) and fixed effect model (FEM) techniques of the panel least square was adopted for empirical testing while statistical testing was done using the descriptive statistics, unit root tests and co-integration tests. Credit risk management was measured using data on non-performing loans (NPL), liquid ratio (LQR), capital adequacy ratio (CAR) and loan loss provisioning (LLP) while bank size (BS) was introduced as a control variable. Corporate governance was measured using data on audit committee independence (ACI). Banks stability was measured using the Z-score of sampled banks. Empirical result indicated that NPL had a negative insignificant relationship with bank stability and a positive insignificant relationship with bank stability when corporate governance was introduced. Other credit risk management variables (LQR, CAR, LLPR) were found to strengthen banks stability although their significance were mixed. Bank size was found to be negatively related with banks stability. Premise on research findings, the study concluded that credit risk management is germane to the stability of deposit money banks in Nigeria during the period of study. It was also concluded that corporate governance although having a positive relationship with banks stability has no significant impact. Among other things, the study recommended that detailed policies and procedures for non-performing loans exposure, management and recovery are in place so as to reduce the incidence of non-performing loans. Keywords: Credit Risk, Bank Stability, Corporate Governance, Z-Score. DOI: 10.7176/RJFA/12-16-01 Publication date: August 31 st 2021

Assessing the impact of macroeconomic uncertainties on bank stability: Insights from ASEAN-8 countries

This paper is devoted to defining the role of the central bank in ensuring banking and financial stability. The main purpose of the study is to assess the direction and strength of the impact of central bank independence in terms of its individual aspects on the parameters of banking and financial stability for different groups of countries. Systematization of literature sources and the results of existing empirical research has shown that the expected effects of increasing the independence of the central bank are to improve banking and financial stability. For the study, a sample of statistical data for 10 developed and 10 developing countries for the period 1991-2012 was formed. The methodological basis of the study were the tools of panel regression modeling with fixed effects with Stata software use. The article presents the results of empirical analysis, which showed that the independence of the central bank is an important factor in ensuring banking stability. At the same time, the impact on financial stability has not been conclusively confirmed. The study empirically confirms and theoretically proves that the stage of development of the country determines the strength of such influence. Thus, developed countries generally show closer links between central bank independence and banking and financial stability, which in most cases are directly dependent, while developing countries have less lasting effects. The results of the analysis of the links between certain aspects of central bank independence and the level of banking and financial stability are of great practical value. The results of the study create a scientific basis for substantiating the sequence of actions aimed at strengthening the independence of the central bank. Thus, in developing countries, the focus should be on defining and prioritizing central bank goals, while developed countries should take a deeper approach to this issue and ensure the independence of monetary policy and financial independence of the central bank. Keywords: central bank, independence, banking stability, financial stability, Z-score, non-performing loans, capitalization, developed countries, developing countries, panel data.

Purpose This study examines the impact of IFRS 9 adoption on bank stability in Africa, with a special focus on the role asset and earnings quality play on bank stability following its adoption in 2018. Design/methodology/approach The study utilises panel data drawn from 554 banks in 43 African countries over the period 2014–2021. Various econometric analyses are performed using two-sample tests and two-step GMM regression for data comprising 3,510 firm-year observations. Findings The findings, which are robust for endogeneity and the adverse effects of COVID-19 pandemic on bank stability, reveal potential cross-country heterogeneity relating to the effects of IFRS 9 adoption, asset and earnings quality on bank stability. There seems to be a limited influence of IFRS 9 adoption on the stability of banks in Africa. The results reveal that declines in asset quality negatively impact bank stability, while improved earnings quality is effective in promoting bank stability. Increases in nonperforming loans are associated with increased bank risk, which is cushioned through improved earnings quality following IFRS 9 adoption, thereby boosting bank stability. Research limitations/implications The study argues that since the IFRS 9 adoption was more of a conciliator between the interests of both bank regulators and accounting enforcement agencies, the adoption of the standard is likely to contribute to a relatively stronger financial services sector, especially in developing economies. The study cautions regulators not to employ a “straight-jacket” approach in implementing the standard and its consequent pronouncements. Practical implications The study is useful in informing accounting regulators, bank managers, auditors and financial reporting managers of banks as to the implications of IFRS 9 adoption. Originality/value This is perhaps one of the few studies to examine a large dataset illustrating the implications of the mandatory adoption of IFRS 9 in developing and emerging economies.

Using a panel dataset for 40 developing economies, this paper investigates the effects of US stock market volatility on bank stability in developing countries for the period of 2000–2023 with the fixed effects model and the two-step System Generalized Method of Moments. In the analysis, banking stability was measured by the Z-score and the non-performing loan (NPL) ratio. The findings reveal that volatility in the US stock market has a significant and negative impact on bank stability in developing countries. This effect remains consistent both in methodological robustness tests and in analysis with alternative stability indicators. The results obtained show that measures for policymakers, such as strengthening capital adequacy regulations, improving liquidity management, and diversifying financial markets to reduce dependence on external capital, will play a critical role in increasing bank stability.

PurposeThis study aims to investigate the impact of liquidity creation (LC) on the profitability and stability of banks while considering the moderating role of corruption.Design/methodology/approachPanel data from 23 conventional banks and five Islamic banks in Pakistan spanning from 2008 to 2021 were used for analysis. The study used fixed effect and random effect models, along with the generalized method of moments estimation to ensure robustness of the results.FindingsThe study reveals a negative relationship between LC and banking profitability, but a positive association with banking stability. Additionally, corruption is found to play a moderating role in the relationship between LC, profitability and stability in the banking sector of Pakistan.Research limitations/implicationsThe findings have practical implications for bank managers and investors, emphasizing the negative relationship between LC and profitability in Pakistan. Moreover, the study highlights the significant impact of corruption on bank performance, which can guide policymakers in formulating strategies to strengthen the banking sector and prevent financial turmoil in the future.Originality/valueThis study makes a significant contribution to the existing literature by examining the moderating role of corruption in the relationship between LC, profitability and stability in both conventional and Islamic banks.

Sovereign Risk Spill-Overs to Banking Sectors in Central America and the Caribbean

The stability of commercial banks operating in the MENA region is still questionable even though they have faced a drastic favorable change after 2008. Most of bank's regulatory capital are controlled by corrupted governmental officials which led banks in this region to increase their risk-taking behavior at the expense of stability. This paper examines the impact of regulatory capital, economic, institutional, and political factors on the stability of commercial banks that are operating in the MENA region. The data employed in this study is a pooled cross-section and time series data of 13 banking system in the MENA region: Lebanon, Saudi Arabia, Qatar, Kuwait, Jordan, United Arab Emirates, Tunisia, Bahrain, Oman, Morocco, Egypt, Israel, and Turkey covering the period of 2000 to 2017. A dynamic Generalized-Method-of-Moments (GMM) estimator was adopted and a two-stage least squares (2SLS) regression method was conducted to check for robustness. Relying on the results of Hausman test, a fixed effects model was used. The following variables have shown a significant and positive relationship with bank stability; the equity (CAP), the profitability (ROA), the growth (ΔGDP), and the dummy Basel II (BAS2) variables. The positive impact of both capital and Basel II requirements on bank stability supports the regulatory hypothesis. Conversely, non-performing loans and bank's size negatively affected the stability of the banking sector. Regarding the institutional factors, the quality of governmental regulations and political stability have shown a positive relationship with bank's stability while the other variables (corruption, establishing new prudential rules, and freedom in speech) failed to show a significant relationship. The findings of this paper confirmed the progression of the additional capital requirements for MENA region banks. Moreover, a close supervision should be applied on large banks that might have the tendency to increase their risk-taking behavior to overcome the cost of the additional required capital. In additional, our findings verified that economic growth and operating environment play a crucial role on the stability of the banking sector. Finally, the results confirm that institutional-linked factors are more important than country-related regulations in enhancing bank's stability due to the presence of a well-designed Basel framework.