The Effect of Using Securitization on the Stability and the Risk of Banks: Evidence From Emerging Countries

Mohamed Rochdi Keffala,Amal Farjaoui

doi:10.5430/ijfr.v11n2p205

Abstract

The purpose of this study is to investigate whether securitization affect financial stability and risk of banks issued from emerging countries during the period 2007 to 2017.To reach this end we conduct dynamic panel data econometrics with Generalized Methods of Moments (GMM) system on 20 banks issued from emerging countries. The dependent variables are defined by “Bank Stability Index” (BSI) and “logarithm of z-score” and ratios of total risk and credit risk. The independent variables are split into variable of interest (securitization ratio), bank-specific variables (capital adequacy, profitability, on-balance sheet interest rate risk, financial margin, income diversification, liquidity and bank size) and country-specific variables (GDP and inflation).As major conclusion, we find that using securitization - by banks from emerging countries – enhances their financial stability and minimizes their total risk and credit risk.As a practical contribution to this work, we suggest that banks' decision-makers in emerging countries increase their use of securitization in order to benefit from its beneficial effect on their financial stability and risks.

Highlights

For several years, the financial system of several countries has entered a phase of profound changes at the origin of two major phenomena namely new technologies and deregulation
As a practical contribution to this work, we suggest that banks' decision-makers in emerging countries increase their use of securitization in order to benefit from its beneficial effect on their financial stability and risks
All the panels use as variable of interest the securitization ratio (SEC) and use at most the following control variables which are divided into two groups: bank-specific variables defined by capital adequacy (CAD), liquidity ratio (LIQ), net interest margin (NIM), return on assets (ROA), return on equity (ROE), on-balalncesheet interest rate risk (NONIM), efficiency (EFF), income diversification (DIV) and size, and country-specific variables defined by GDP and inflation (INF)

Summary

Introduction

The financial system of several countries has entered a phase of profound changes at the origin of two major phenomena namely new technologies and deregulation. This metamorphosis of the financial environment has led financial institutions to create new financial products based on these new and regulatory technologies called financial innovations. Among the financial innovations most used by banks in recent decades, there are securitization products. The first securitization transactions were carried out in the United States in the 1970s. Since the securitization field has continued to expand and these operations are developing in many countries whether developed or emerging.

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