Impact of Fintech on the Financial Stability of Banks: A Systematic Literature Review

Global banking systems, financial stability, and uncertainty: How have countries coped with geopolitical risks?

The article is devoted to the analysis of the financial stability of Ukrainian banks at the present stage of development and the identification of the main factors of influence that are associated with it. The main tendencies of development of the banking system of Ukraine are considered. The present state of the banking system of Ukraine is determined. Financial stability plays a significant role in planning the activities of commercial banks. In general, its indicators reflect the level of riskiness of the functioning of the entity of the banking system. Managing financial sustainability has a significant impact on the functioning of banks. That is why it is necessary to create special control departments in banking institutions. The research of financial stability of banks is based on financial sustainability indicators developed and used by the IMF and the World Bank as the basis for the "Integrated Financial Sector Development Program until 2020". The necessity of applying different methods for evaluating the financial stability of commercial banks has been established in order to identify a wider range of problems related to the efficiency of the functioning of the banking system. The description of two main groups of factors, under the influence of which the financial stability of banks undergoes changes, is presented. It was revealed that external factors have a more significant impact on the financial stability of a bank. In particular, the factors of mega environment have become more important when banks enter the international financial space. Internal factors lie mostly in the management plane, and it is just the inefficient management of the bank that leads to the disruption of its stable financial condition. Specific features of management of financial stability and methods of its evaluation are considered. The analysis of economic standards of the banking system of Ukraine is carried out. The measures are proposed to minimize the risks and maintain the stability of banking institutions at the required level for normal functioning in modern conditions. It has been proved that providing, supporting, analyzing and evaluating the financial stability of commercial banks is a driving force in the development of the banking system, and hence the entire Ukrainian economy.

This study explored the ripple effect and consequences of correspondent banking de-risking on global financial inclusion and stability, with a specific focus on evidence from Europe. Driven primarily by increased compliance requirements and the need to mitigate risks associated with anti-money laundering and combating the financing of terrorism regulations, de-risking led to the termination of correspondent banking relationships with various countries and financial institutions. The research aimed to understand the implications of this phenomenon on financial integration, access to essential financial services, and the exacerbation of economic disparities among different regions and demographic groups in Europe. A descriptive research design approach was employed, mainly quantitative analysis of CBR data and regulatory changes. The findings demonstrated that de-risking had a significant negative impact on financial inclusion and stability, particularly for small and medium-sized enterprises, non-profit organizations, and marginalized communities. Moreover, the termination of CBRs disrupted the flow of remittances, trade finance, and development aid, and led to an increased reliance on less-regulated, informal channels, which in turn undermined the global AML/CFT regime and exacerbated financial crime and systemic risks. Based on these findings, the study recommended enhancing collaboration and coordination among regulatory authorities, financial institutions, and affected stakeholders to develop a harmonized regulatory framework across European countries, implement a risk-based approach, and establish a centralized information-sharing platform. Additionally, targeted capacity-building efforts, exploration of innovative financial solutions, and the development of financial inclusion strategies prioritizing the needs of the most vulnerable segments of the population were recommended to counteract the negative effects of de-risking and promote financial inclusion and stability in Europe. Keywords: Correspondent banking de-risking, financial inclusion, global financial stability, anti-money laundering, combating the financing of terrorism

This study aims to support Iraqi banks in developing their banking services according to the latest financial and technological innovations, as well as to clarify the actual role that financial technology plays in achieving financial stability as one of the modern methods of banking operations. The study addressed two main variables: financial technology, which represents the independent variable due to its increasing significance in financial and banking institutions, and financial stability as the dependent variable. The study population included the Iraqi banking system, covering the period from 2017 to 2023, which marks the phase during which financial and banking institutions began to adopt electronic financial services as an alternative to traditional methods. The main hypotheses related to financial correlations and the impact of the studied variables were tested using financial indicators and statistical methods, with the application of the (SPSS) statistical program and financial ratios. The study reached significant findings, the most notable of which is that financial technology has a considerable impact on the financial stability of banks. Therefore, the banks included in the study should pay special attention to this factor. Moreover, the results emphasized that the design of banking financial services should be based on the extent of the benefit achieved, followed by service quality, and finally, ease of access.

The article systematizes the statistical tools for analysing the financial stability of Ukrainian banks, considering the conditions of their operation. The study is conducted in the following logical sequence: clarification of the concept of «bank financial stability» as an object of statistical analysis; formation of a system of financial stability indicators for banks; determination of statistical analysis methods and development of the recommendations for their application to assess aspects of bank activities that influence their financial stability. Bank financial stability is proposed to be viewed as a complex, multidimensional latent characteristic, determined by a combination of internal and external factors, not subject to direct measurement, and manifested through other parameters of bank functioning. The article generalizes individual indicators of banks’ financial stability, including regulatory approaches and additional indicators, based on key parameters such as capitalization, asset and liability quality, operational efficiency, and liquidity. The applicability of composite indicators, which allow to do a comprehensive assessment of the bank’s financial stability, is determined. The systematization of the literature sources and approaches has shown that using the statistical methods allows for more accurate assessment and forecasting of banks’ financial stability parameters and timely identification of potential issues that may lead to increasing crisis potential. The statistical tools for analysing banks’ financial stability are systematized into the following categories: descriptive statistics, time series analysis, regression analysis, cluster analysis, factor analysis, machine learning, and artificial intelligence. The study empirically confirms and theoretically proves that integrating big data and modern analytical methods can significantly improve the accuracy of assessing banks’ financial stability in an operational environment characterized by uncertainty, nonlinearity, and information asymmetry. The research results can be helpful for banking institutions and researchers dealing with financial stability and risk management issues.

The two most topical issues in current financial markets deal with the causes of the recent financial crisis and the means to prevent future crises. This book addresses the latter and stresses a major shift in most countries toward a better understanding of financial stability and how it can be achieved. In particular, the papers in this volume examine the recent change in emphasis at central banks with regard to financial stability. For example: What were the cross-country differences in emphasis on financial stability in the past? Did these differences appear to affect the extent of the adverse impact of the financial crisis on individual countries? What are perceived to be the major future threats to financial stability? These and related issues are discussed in the book by well-known experts in the field — some of the best minds in the world pursuing financial stability. Following the global financial crisis, significant reforms have been initiated in many countries to address financial stability more directly, frequently focusing on macroprudential policy frameworks in which central banks play a more active role.

This study used the Generalized Method of Moments (GMM), a dynamic two-step approach, to examine the effect of COVID-19 on the financial stability of private commercial banks in Ethiopia. The study offered a thorough evaluation of the ways in which different elements affected financial stability during the pandemic period by examining data from 16 private banks. The results showed that the financial stability of the banks was positively impacted by COVID-19, the financial stability of the prior year, liquidity, and GDP. In particular, the financial climate has become more stable as a result of the pandemic-induced changes to digital banking and regulatory adjustments, as well as economic expansion. On the other hand, less financial stability is linked to bigger banks, greater financing risk, higher credit risk, and greater bank concentration. Greater operational and risk management difficulties may be faced by larger banks, and financial stability may be undermined by excessive funding and credit risk. The findings highlight the intricate relationships at work, where internal variables and external shocks like the COVID-19 epidemic combine to influence banks’ financial health. Policymakers and bank managers, who have to deal with the difficulties of controlling credit risk, interest rates, and bank size, need to know these insights. According to the study, resilience can be strengthened by prior financial stability and favorable economic indicators, but in order to maintain financial stability in the post-pandemic age, care must be taken to reduce the risks associated with larger banks and credit risk to ensure sustained financial stability in a post-pandemic era.

Purpose: The purpose of this article was to analyze effect of central bank digital currencies (CBDCs) on the global financial system's stability in Kenya. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: The introduction of central bank digital currencies (CBDCs) in Kenya could enhance financial inclusion and reduce transaction costs, particularly for the unbanked. However, risks such as cybersecurity threats, financial disintermediation, and impacts on traditional banking systems exist. CBDCs could also give central banks more control over monetary policy. While offering benefits, their success depends on strong regulatory frameworks, technological infrastructure, and addressing privacy concerns. Careful implementation and international coordination are essential for ensuring financial stability in Kenya's ecosystem. Unique Contribution to Theory, Practice and Policy: Financial intermediation theory, theoretical framework of financial stability & network effects theory may be used to anchor future studies on the effect of central bank digital currencies (CBDCs) on the global financial system's stability in Kenya. Central banks should adopt a cautious and incremental approach to CBDC implementation, as recommended. Governments and central banks worldwide must engage in international dialogues to ensure coordinated approaches to CBDC adoption.

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

This study examines the relationship between financial technology (Fintech), corporate social responsibility (CSR), and bank financial stability (BFS) in Islamic banks in Indonesia, with a particular focus on the role of fintech as a mediator. Using a quantitative approach, this study utilises secondary data from the annual and sustainability reports of Islamic banks listed on the Indonesia Stock Exchange (IDX) for 2021-2023. Data were analysed using the Partial Least Squares-Structural Equation Modelling (PLS-SEM) method. The results of the study show, first, that CSR has a significant direct effect on BFS and an indirect effect through fintech. Second, although the relationship between CSR and fintech is negative, fintech plays a crucial role in enhancing the financial stability of Islamic banks. Third, it was revealed that BFS does not significantly influence fintech, and although BFS does influence CSR, the mediating role in this relationship has not been proven. These findings emphasise the importance of an integrative and prudent approach in the adoption of fintech by Islamic banks. Although fintech can enhance stability, banks must continue to uphold their CSR commitments to prevent a decline in social initiatives, which could damage their long-term legitimacy and reputation. This research offers new insights into the complex interplay between social responsibility and technological innovation in Indonesia's distinct context of Islamic banking.

PurposeThis study aims to show the relationship between competition, financial stability and ownership structure of banks in the Middle East and North African (MENA) countries.Design/methodology/approachThis study uses the generalized method of moments (GMM) estimators to generate research results. This study uses an unbalanced panel dynamic data set. It covers the period 2011 to 2017 in MENA banks.FindingsThis study implies that there is a significant and positive relationship between market power and the financial stability of banks in MENA countries. It explains a competitive market focus on credit risk, which turns them risky. From the bank’s ownership view, Islamic banks are in a less risky position which means Islamic banks are more stable than other ownership structures. On the other hand, government specialized institute displays their poor financial stability and risky from other ownership structures. Unfortunately, there is no significant impact of ownership structure on competition unless Islamic banks prove that they (Islamic banks) perform better in market power.Practical implicationsThe empirical findings of this study suggest that MENA banks should improve the process of managing and monitoring the non-performing loan (loan segment business). It reduces the level of credit risk, which leads to achieving more profit. It also recommends that loan quality should improve immediately in this region for declining financial disruption. Based on the ownership structure, policymakers and stakeholders should adjust their risk and financial stability. Notably, the stakeholders can focus on Islamic banks in this region as this type of ownership structure showing superiority over other ownership structures.Originality/valueThis study is based on the latest data set and produced outcomes by using a GMM estimator. It also uses multiple measures of competition and risk variables to get robust results. Moreover, to the best of the knowledge, this study is the pioneer to examine the competition, risk (financial stability) and ownership structure of banks in the MENA countries.

Purpose– The purpose of this paper is to investigate on the social wellbeing aspects of human sustainability. Linked to this is the investigation on how economic stability and social wellbeing are interactively integrated together to establish the stability along with sustainability. What is the nature of the global financial architecture? Why has it defied formation? Have the underlying theory of financial economic theory, its variables and indicators, and axioms of man and society in their midst, denied the actualization of the intended institution? How can the global stability and well-being criterion be established from coordinated level of global socioeconomic consciousness?Design/methodology/approach– A generalized evaluation model addressing the “as is” and the “as it ought to be” scenarios is formalized. An illustrative empirical example is provided to chart such a method of empirics using the episteme of unity of knowledge and its various ramifications.Findings– Thus, there is a general perspective overarching the selection of theory, variables and their inter-causal consequences that the global financial architecture cannot answer. The institutional structure envisioned thereby is not representative of the lateral aggregation of membership in prevailing socioeconomic understanding. Instead, a complex yet unifying aggregation is carried out to receive its global acceptance? The episteme of unity of knowledge (Tawhid) in the Islamic perspective along with its methodological formalism and empirical and strategic implications for sustainable global financial stability is presented as the unique and universal alternative.Research limitations/implications– More empirical analysis can be carried out by extending the critical portfolio variables and collecting data on them as required.Practical implications– The paper evaluates the roots of human deprivation in an uncertain global order as being based on a quaint way of understanding socio-scientific reality and applying human consciousness toward its reconstruction. The paper then proposes an alternative and applied perspective of the opposite methodological worldview premised on unity of knowledge and unity of the world-system. This epistemology is referred to as Tawhid, meaning the oneness of God represented by organic unity in the order of everything.Social implications– Within the world-system, complex as it is, abide the epistemological foundations of economic, financial and social thought. Thereby, the analytical extraction derived from the episteme of unity of knowledge (Tawhid) exemplifies the ethical reconstruction and its application in rigorous ways to attain sustained global financial and social stability.Originality/value– This paper has suggested that under the prevailing paradigm of thought and its institutionalism the future of global financial stability is not sustainable as it has proved in the recent past. Yet there is a different epistemological way of rethinking the world-system in general in its interconnected dimensions and taking the specific example of the financial economy. Upon such new reconstruction, an entirely new methodological and strategic worldview can be established. This is the methodological worldview of unity of knowledge and its formalism.

Does central bank communication on financial stability work? ——An empirical study based on Chinese stock market

In the era of the global economy, increasing banking competition will encourage an increase in banking transactions and activities. Banking transactions and activities will affect a country's financial stability. The purpose is to obtain the nonlinear effect of banking competition on financial stability at a specific regime. Previous research assumed that this impact applies to every economic regime. The impact of banking competition on financial stability can change at certain regime levels. Nonlinear impact occurs according to the regime. The method is based on a nonlinear threshold regression model. The researchers obtained the data from five ASEAN countries. The findings of this research are in-depth information about the financial system stability model. Analysis of the effect of variance supports the inconsistency of the effects found by several previous researchers. Practical implications are aimed at policymakers to make different decisions at the GDP level, CAR and Liquidity. The economic regime in each country is different, so this analysis is constructive for policymakers to see the conditions of banking competition and financial system stability at a certain regime level. The originality article systematically offers an analysis that assumes the effect can change at a certain regime level.JEL Classification: E5, G15, G01, G32, C24How to Cite:Ekananda, M. (2023). The Impact of Banking Competition on Bank Financial Stability: Evidence from ASEAN 5 Countries. Etikonomi, 22(2), 409 – 428. https://doi.org/10.15408/etk.v22i2.31003.

The size of non-performing loans plays a vital role in banking stability of any given economy. The paper investigates the resilience and stability of banks amidst the deteriorating quality of its assets since the last Global financial crisis. This study examined the effect of non-performing loans on banks financial stability in Kenya’s commercial banks using secondary data for the period January 2015 to December 2019. A multiple regression model was utilised in analysing the data. Non-performing loans as measured by non-performing ratio had a positive and statistically significant relationship with banks financial stability as measured by Z a-score. The results implied that non-performing loans in Kenya’s commercial banks affects the banks financial stability. Loans to deposit ratio results specified a positive and non-statistically insignificant relationship with banks financial stability. The results inferred that loan to deposit ratio do not affect the banks financial stability. Inflation rate results had a positive but statistically significant relationship with banks’ financial stability indicating that inflation rate affects banks’ financial stability. The results for loan growth had a negative but statistically significant relationship with banks financial stability. The study recommended implementation of measures that curb increase in non-performing loans as they threaten banking financial stability.