Capital Adequacy Ratio Of Banks Research Articles

The impact of Basel III regulations on solvency and credit risk-taking behavior of Islamic banks

PurposeThis study aims to examine the simultaneous effect of variations in the Capital Adequacy Ratio and Credit Risk of Islamic banks of the Gulf Cooperation Council under the influence of the Basel III regulations using an innovative approach.Design/methodology/approachThis approach highlights the critical importance of the Basel III reform in preserving the stability of the regional and international financial sector in the Gulf Cooperation Council and globally by examining the complex dynamics between Capital Adequacy Ratio and Credit Risk and their interaction under regulatory constraints. The annual reports and financial performance of 26 Islamic banks were analyzed over the period 2013–2021.FindingsThe findings highlight the critical importance of the Basel III reform in preserving the stability of the regional and international financial sector in the Gulf Cooperation Council and globally by examining the complex dynamics between Capital Adequacy Ratio and Credit Risk and their interaction under regulatory constraints. The annual reports and financial performance of 26 Islamic banks were analyzed over the period 2013–2021.Originality/valueThe insights from findings help define effective strategies to manage and mitigate Credit Risk while strengthening solvency under Basel III prudential supervision. Policymakers, regulatory authorities and banking institutions can optimize the management of Credit Risk and create a robust and stable financial environment for Islamic banks.

Research on the Coordination of Bank Capital Adequacy Ratio and Monetary Policy

Capital adequacy ratio and monetary policy are important control measures of financial supervisory authority and monetary authority, respectively. The effective coordination of the two has greatly affected the effectiveness of monetary policy. The article selects the annual data of 16 listed commercial banks in China from 2003 to 2018, and studies the impact of capital adequacy ratio on monetary policy transmission by constructor. listed commercial banks in China from 2003 to 2018, and studies the impact of capital adequacy ratio on monetary policy transmission by constructing a panel regression model. The results show that large state-owned commercial banks play a major role in bank credit channels for monetary policy, and banks with higher capital adequacy ratios are more likely to have a higher capital adequacy ratio. The results show that large state-owned commercial banks play a major role in bank credit channels for monetary policy, and banks with higher capital adequacy ratios are more vulnerable to monetary policy shocks. In addition, the external capital constraint of minimum capital adequacy will cause a multiplier effect when monetary policy is transmitted through credit channels. The multiplier effect produced by joint-stock commercial banks is much smaller than that of large state-owned banks. The multiplier effect produced by joint-stock commercial banks is much smaller than that of large state-owned banks. Therefore, financial supervisory departments must fully consider the interference caused by the capital adequacy ratio on monetary policy, strengthen policy coordination, and unblock the transmission mechanism of Therefore, financial supervision departments must fully consider the interference caused by the capital adequacy ratio on monetary policy, strengthen policy coordination, and unblock the transmission mechanism of monetary policy.

Cash Flows and Capital Adequacy Ratio of Indonesian Commercial Banks

This article examines the impact of partial Cash Flows from Operating Activities (CFO), Cash Flow from Investing Activities (CFI), and Cash Flow from Financing Activities (CFF) on the Capital Adequacy Ratio (CAR) of Indonesian commercial banks. The tests are conducted over a purposive population, sample, and unit of analysis of data from five years from 2009 to 2013 of the Big-Five commercial banks in the country. The period selection considered the banks’ response post-financial crisis in 2008. The classic assumption tests assumed that all data are valid for the simple regression to test each independent variable's correlation and effect on the dependent variable using EViewS econometric software. The test results show that all CF elements correlated negatively with CAR. The CFI shows a significant impact, while the CFO and CFF have insignificant implications on CAR. The conclusions imply that the parties should pay special attention to CFI, which significantly influences the CAR. This conclusion supports the CFI's central position as the source of long-term profit funded by the CFF. The finding indicated that post-crisis 2008, the Indonesian commercial banks improved their investment in long-term assets. The new long-term investment has not resulted in an additional cash flow and even depressed the net cash flow from investing activities. Given the necessity of banks to avoid idle funds, this study recommends future studies concerning the trade-off between CF decrease and the banks' profitability.

Financing Moderation in the Relationship of Investing Activities and the Bank Capital Adequacy Ratio

This study compares the influence of Cash Flow from Financing Activities (CFF) moderation on the relationship between Cash Flow from Investing Activities (CFI) and Capital Adequacy Ratio (CAR) of the big-five commercial banks in Indonesia and Malaysia. The big-five selections consider the banks' leadership in the countries during the first five years post-crisis 2008. The study uses E-view software to analyze the 2009 to 2013 data, including the stages of the data validity test, simple regression, and multiple regression. Two discrete hierarchical Sobel tests were applied to measure the CFF moderation impact on the CFI and CAR relationship applicable to each group of banks. Finally, the study distinguished the discrete Sobel test outputs using a Chow statistic. The Sobel test shows that in both Indonesian and Malaysian banks, the CFF moderation has positive but insignificant effects on the CFI and CAR relationship. Consistent with the conclusions, the Chow statistic shows a significant difference in the CFF moderation effect on the CFI and CAR relationship. These conclusions bring implications to the interest parties to align their concerns with the two countries' contradictive CFI and CFF funding patterns in shaping the CAR.

The development and application of convertible Bonds -- A case study of Shanghai Pudong Development Bank's Convertible Bonds

In recent years, with the continuous strengthening of refinancing demand, banks have more diversified ways of refinancing, such as perpetual bonds, secondary capital bonds, and convertible bonds. It is found that convertible bonds meet the capital replenishment needs of commercial banks, and the financing cost is compared with that of other financing instruments. The method adopted in this paper is the case analysis, and the "Pudong Development Convertible Bond" publicly issued by Shanghai Pudong Development Bank (SPDB) in 2019 is taken as the case study object. Based on the background that commercial banks are scrambling to issue related schemes of convertible bonds, this paper expounds on the financing effect and significance of the issuance of convertible bonds by SPDB based on the historical process and current situation of convertible bonds and the basic situation and financing process of SPDB. Comprehensive analysis shows that before the issuance of convertible bonds, the asset-liability ratio of SPD Bank is relatively high. After the issuance of convertible bonds, the asset-liability ratio and capital adequacy ratio of banks have been improved, but the return rate and net profit level have been negatively affected. The paper hopes to provide a reference value for issuers such as commercial banks and listed companies as well as regulators of convertible bonds on the improvement of the market system of convertible bonds.

Analisis Kinerja Keuangan dengan Pendekatan Metode RGEC (Risk Profile, Good Corporate Governance, Earnings, Capital) pada Unit Usaha Syariah Bank Kaltimtara

The purpose of this study was to analyze the financial performance of the BPD Kaltimtara Syariah for the 2014-2018 period using the RGEC method approach (Risk Profile, Good Corporate Governance, Earnings, Capital). The analytical tool used is the RGEC method (Risk Profile, Good Corporate Governance, Earnings, Capital), while the research method uses descriptive quantitative approach. The object of this research is the East Kalimantan Regional Development Bank registered in the Bank Indonesia directory, which has annual reports from 2014 to 2018. Data collection techniques used are documentation techniques and library techniques. The results showed the overall financial performance of BPD Kaltimtara Syariah during the 2014-2018 period in terms of risk profile, namely by analyzing credit risk represented by the ratio of NPF (Non Performing Finance) said to be quite good and from liquidity risk analysis represented by FDR ratio (Finance to Deposit Ratio) can be said to be quite liquid. While in terms of GCG (Good Corporate Governance) the Bank's performance is good and overall financial performance in terms of earnings (earnings) is by analyzing the ROA (Return On Assets) or profit based on assets and the ratio of NIM (Net Interest Margin) or management capability in controlling Bank costs are said to be good and the BOPO ratio (Operational Costs at Operational Income) is said to be less efficient in processing profits. Overall financial performance in terms of capital by analyzing the ratio of capital to ATMR (Risk Weighted Assets) represented by calculating the ratio The Bank's CAR (Capital Adequacy Ratio) is said to be very good.

ANALYSIS OF MICRO PRUDENTIAL DETERMINANTS OF CAPITAL ADEQUACY IN DEPOSIT MONEY BANKS

This work presents an analysis of micro prudential determinants of capital adequacy of deposit money banks (CADMBs) in Nigeria between the periods of 1990-2021 (32years). This was done in respect to the measures of micro prudential determinants of CADMBs, namely; Profitability (PROF), Liquidity Ratio (LIQR), Bank Size (BS), Ratio of Total Loan and Advances to Total Assets (RTLADTA) and Ratio of Total Deposits to Total Assets (RTDTA) in relation to CADMBs proxied with Capital Adequacy Ratio (CAR) of deposit money banks (DMDs) in Nigeria. The data for the study was sourced from CBN statistical bulletin, CBN bank supervisory annual report and NDIC annual report. Then, the stationary and normality tests was carried out, followed by the descriptive statistics, correlation and multiple regression tool of analysis with the aid of E-VIEW 9.0 statistical package. The findings revealed that PROF exerts negative insignificant effect on CAR of banks in Nigeria; LIQR exerts negative significant effect on CAR of banks in Nigeria; BS exerts positive significant effect on CAR of banks in Nigeria; RTLADTA exerts positive significant effect on CAR of banks in Nigeria and RTDTA exerts positive insignificant effect on CAR of banks in Nigeria. Thus, the study concluded that the identified measures of micro prudential determinants have significant effects on CADMBs. The study recommended that banks should also ensure strict compliance with regulatory requirements concerning CAR, risk management and loans administration since they may have a toll on the profitability and sustenance of the banks.
 Keywords: Prudential, Determinants, Capital Adequacy, Liquidity and Bank Size.

The impact of the Equator Principles on carbon financial markets: A case study based on China's green credit data

Empirical research was conducted on green credit asset securitized products issued by commercial banks in 2014 and 2016. By establishing an Autoregression moving average (ARMA) model, the paper analyzed the relationship between the Industrial Bank's implementation of green credit asset securitization and its capital adequacy ratio. The results showed that the implementation of green credit asset securitization improved the bank's capital adequacy ratio and reduced its nonperforming loan ratio. Then, an empirical study based on carbon finance market operating mechanisms was conducted on Chinese commercial banks that have adopted the “Equator Principles” (EPs). An event study method was used to observe the impact of adoption on the banks. The results indicate that, after the industrial bank adopted the “Equator Principles ", its asset scale increased from 2006 to 2009, whereas its nonperforming loan ratio decreased from 2006 to 2011. After commercial banks adopted the “Equator Principles ", the cumulative average excess return reached its maximum on the eighth day after the event and was significantly higher than the industry average. It is important to promote the awareness of banks of their close links with environmental protection and encourage them to adopt the “Equator Principles” to significantly improve their risk management awareness, business processes, technical systems, and performance in the carbon financial market. By adopting the “Equator Principles”, developing financial derivatives for carbon trading, and promoting the development of structured products for carbon trading, commercial banks can contribute to environmental protection while gaining commercial benefits.

Systemic Risk Analysis of Multi-Layer Financial Network System Based on Multiple Interconnections between Banks, Firms, and Assets.

Global financial systems are increasingly interconnected, and risks can spread more easily, potentially causing systemic risks. Research on systemic risk based on multi-layer financial networks is relatively scarce, and studies usually focus on only one type of risk. This paper develops a model of the multi-layer financial network system based on three types of links: firm-bank credit, asset-bank portfolio, and interbank lending, which simulates systemic risk under three risk sources: firm credit default, asset depreciation, and bank bankruptcy. The impact of the multi-layer financial network structure, default risk threshold, and bank asset allocation strategy is further explored. It has been shown that the larger the risk shock, the greater the systemic risk under different risk sources, and the risk propagation cycle tends to rise and then decline. As centralized nodes in the multi-layer financial network system, bank nodes may play both blocking and propagation roles under different risk sources. Furthermore, the multi-layer financial network system is most susceptible to bank bankruptcy risk, followed by firm credit default risk. Further research indicates that increasing the average degree of firms in the bank–firm credit network, the density of the bank-asset portfolio network, and the bank capital adequacy ratio all contribute to reducing systemic risk under the three risk sources. Additionally, the more assets a bank holds in a single market, the more vulnerable it is to the risks associated with that market.

Comparing the Cash Flows’ Influence on Capital Adequacy Ratio of Indonesian and Malaysian Commercial Banks

This study examines the difference in the simultaneous impact of Cash Flow from Operating Activities (CFO), Cash Flow from Investing Activities (CFI), and Cash Flow from Financing Activities (CFF) on Capital Adequacy Ratio (CAR) between Indonesian and Malaysian commercial banks. By considering the comparability of capital performance post-financial crisis of 2007 to 2008, this study adopted the purposive secondary data published by the big five banks from 2009 to 2013. An E-view statistical software was applied to the panel data to provide coefficients of discrete multivariate regressions between countries and a hypothesis test. The results showed that all Indonesian banks’ CF items negatively correlated with the CAR. Similar correlations also occur for both CFO and CFF on CAR of Malaysian commercial banks, but on the other hand, a positive correlation occurs in the CFI and CAR relationship for Malaysian Commercial banks. Based on a Chow test on the regression outputs, this study concludes that the CFI is the distinguishing factor in the CF’s impact on CAR in the comparison scenario. The finding confirms that Malaysian commercial banks enjoy the Cash Flow stemming from the gains of past investing activities to increase the CAR under study. On the Indonesian side, the negative correlations of CFI, along with CFO and CFF against the CAR alert that refers to the basic CAR formula, the increases in CAR occur concurrently with the annual CFI decreases to spend on investing activities by long term financing. Even though the newest investment contributes to low gains that are inadequate to raise the banks’ equity capital over the increase of risk-weighted assets sooner in the short run.

Managerial discretions and loan loss provisions in Nigerian banks

Aim: The high level of non-performing exposures and the existing crisis in the Nigerian banking sector is a source of concern. To create a basis for solving the troubles caused by the loan loss crisis, this study investigated the managerial discretionary use of loan loss provisions (LLPs) by Nigerian deposit money banks (DMBs). This is considered in the context of solvency risk and reforms embedded in the adoption of International Financial Reporting Standards (IFRSs).
 Design/research methods: Datasets related to the variables of the study were hand-collected from annual reports of a sample of 16 Nigerian deposit money banks over the period of 2007-2017. The analyses were performed using principal components analysis to derive the managerial discretions index (MDI), Prais-Winsten ordinary least square regression to segregate LLP into reported LLPs (TLLP) and discretionary LLPs (DLLP) and appropriate panel data regression models to test the study’s hypotheses subsequent to series of diagnostic tests.
 Conclusions/findings:The results revealed that managerial discretions negatively influence TLLP and DLLP represented by absolute value of DLLP (ADLLP). This represents an increase in profitability without manipulatingloan loss provisions. However, the reforms embedded in IFRSs revealed the use of LLPs for managerial discretions despite reduction in provisioning level noticeable during IFRS. The situation of Nigerian banks threatened by solvency risk use of LLPs for managerial discretions while attempting to increase profit was exemplified in the increase in ADLLP rather than TLLP. However, improvement was noticeable for risky Nigerian banks during IFRS. The managerial discretionary use of LLPs especially during IFRS was engendered by use of LLPs for capital management and earnings smoothing rather than earnings signalling as further revealed. This shows that adoption of International Financial Reporting Standards reduces reporting quality of Nigerian banks in their loan loss decisions.
 Originality/value of the article: The derivation of MDI from measures of earnings smoothing, capital management and earnings signalling is the study’s contribution to accounting for loan losses literature. The adjustments to LLPs to reduce variability of earnings, meet up with minimum regulatory bank capital adequacy ratio and signal strength to absorb future losses encapsulate earnings smoothing, capital management and earnings signalling respectively.
 Implications of the research:The discretionary use of LLPs found in this study beckons an increased level of surveillance, oversights and reforms on the part of the regulators for compliance level devoid of managerial opportunistic behaviour to be identifiablewith Nigerian banks.
 JEL: D22, G21, G28, L20, M41.

Profit-Loss Sharing Financing and Stability of Indonesian Islamic Banking

The study analyzes the extent to which Profit-Loss Sharing (PLS) financings with some control variables influence the stability of Islamic banks. Because of different scheme financings between Musharakah and Mudarabah, we also split them. This study measures stability utilizing Z-score. We employ the Autoregressive distributed lag (ARDL) model using monthly aggregate data of Islamic banks, covering from 2010:M1 to 2019:M12. This study is among studies who are pioneer in analyzing the role of PLS financing on stability. The findings shows that the PLS financings strengthen Islamic banks' stability for which Musharakah financing enhances the stability but Mudarabah financing weakens stability. Evidence also underlines that bank capital adequacy ratio (CAR) support stability but non-performing financing (NPF) and inefficiency lower stability. Macroeconomic conditions persistently support stability for which economic upturn fortifies stability but sharp depreciation weakens stability. This study implies that, in addition to Murabahah, Islamic banks have to diversify their financing on Musharakah.

Factors Affecting Commercial Banks’ Capital Adequacy Ratios in Gulf Cooperation Council (GCC) Countries

This study seeks to identify factors that influence bank capital adequacy ratios for a sample of consists of 62 commercial banks listed on the stock markets operating in GCC countries over the time between 2011 and 2018 was used. To deal with the problems of the data set, we utilize the PCSE method. The empirical results suggested that among the CAMELS model variables, capital ratio, management efficiency, earning capacity, liquidity management, and sensitivity have a positive statistical significant influence on bank capital adequacy ratios. In contrast, Asset quality, market concentration, and bank size have a negative effect on commercial banks' capital adequacy ratios. Concerning macro-economic variables, the empirical results suggested that economic growth and inflation rate influence bank capital adequacy ratios.

FACTORS SHAPING CAPITAL STRUCTURE: EVIDENCE FROM PRIVATE COMMERCIAL BANKS IN BANGLADESH

This study investigates how various determinants shape the capital structure of commercial banks in Bangladesh, employing panel data, structured from available secondary sources, covering 22 banks as samples from 61 scheduled banks for the period of 2011 to 2020, conducting Feasible Generalized Least Squared (FGLS) Regression Model. Several diagnostic tests have been conducted to ensure the robustness and stability of the model. The study results reveal that return on assets, earnings per share, asset growth, asset structure, investment structure, cost per loan assets, and loan loss provisioning considerably influence the capital structure or the leverage of commercial banks. On the contrary, the authors find no explicit evidence that bank size, liquidity, capital adequacy, and non-performing loan ratio have significant impacts on the capital structure of the banking industry of Bangladesh. The findings of this study advocate that return on assets, earnings per share, asset structure, and cost per loan assets as the dominant explanatory factors of capital structure. Besides, asset growth, investment structure, and loan loss provisioning affect less significantly on determining the capital structure of the banking industry. This study also brings the academicians, researchers, and analysts with corroborating new routes for exploring further research in this field.

Determinants of Capital Adequacy Ratio of Banks in Botswana

Capital Adequacy Ratio (CAR) plays a very important role in the financial success of banks and acts as a buffer to prevent and absorb any unexpected losses. This study examines explanatory variables that influence CAR for nine banks in Botswana. Multiple linear regression was used for analysis, with CAR as the dependent variable and thirteen financial ratios as the independent variables. The study period is 2015-2019. Based on the data for this period, it was established that out of the thirteen financial ratios utilised, only four were found to have significant impact on the CAR of the nine banks under study, which are: Asset to Equity Ratio (A E), Return on Equity (ROE), Non-Performing Loans Ratio (NPL RATIO) and the Cost-to-Income Ratio (C I). The A E Ratio was found to be the most influential driver of the CAR and the NPL Ratio was found to be the least influential driver of the CAR for the banks under study.

Good Corporate Governance And Financial Performance On Capital Adequacy Ratio: A Reflection Of Indonesian Conventional Banking

The purpose of this study is to determine the impact of good corporate governance, as well as financial performance as measured by non-performing loans, net interest margin, return on assets, and loan to deposit ratios, on the capital adequacy ratio of conventional banking in the period 2015-2019, using data from the Federal Reserve. The composite value of banking self-assessment is the indicator that was utilized to determine good corporate governance in the context of this study. The quantitative approach used in this study was combined with secondary data. Purposive sampling was used in this study to select a sample of 35 banks, which was then analyzed. The findings revealed that GCG, NPL, ROA, and LDR had no impact on CAR. This occurs because the revenues obtained by the bank are used to mitigate the bank's operational risk, and so have no effect on the bank's capital adequacy ratio (CAR). The NIM has a negative and statistically significant effect on the CAR. This is due to the fact that the NIM indicates that the quantity of loans granted is increasing, implying that the risk faced by the bank is also increasing.

South Africa’s 2003–2013 credit boom and bust: Lessons for macroprudential policy

ABSTRACT We evaluate South African financial stability policy from 2003 to 2013 – the country’s most significant credit boom and bust cycle. This cycle overlapped with both rising bank capital adequacy ratios and the global financial crisis of 2007/8. We use a dynamic stochastic general equilibrium model to identify South African Reserve Bank (SARB) interventions and run counterfactual policy scenarios. We document two instances of policy inaction. Our counterfactual scenarios suggest that, with the benefit of hindsight, the SARB took the correct steps to raise capital requirements during the credit boom, but could have persisted with raising capital requirements for longer (past 2004), and could have adopted a looser policy stance after the global financial crisis to mitigate the credit bust. Our findings reaffirm the importance of counter-cyclical action, the usefulness of bank capital as a buffer against unexpected shocks to build financial sector resilience, and the need for independent but close coordination between monetary and macroprudential policy. In addition, because of structural differences between household and firm credit, the SARB should consider buttressing the uniform countercyclical capital buffer with sector-specific capital requirements.

Does alternative finance moderate bank fragility? Evidence from the euro area

Over recent years stricter EU capital requirements have resulted in constraining bank lending to SMEs. Alternative finance is expected to ease such constraints, but what would it be its impact on bank fragility? This paper examines whether alternative finance for Small and Medium Enterprises (SMEs) in the euro area would moderate bank fragility. We employ a bank profit model from which we derive a novel measure of bank fragility that is based on micro-foundations and is estimated in a single stage with Bayesian techniques. Controlling for many bank and firm specific variables, including bank capital adequacy ratios and volatility, we find that alternative finance overall strengthens bank stability, but that there is some variability in this impact over time and across countries. Interestingly, while higher bank capital adequacy ratios at times may even increase fragility, their interactions with alternative finance could help reduce it.

Factor Affecting the Capital Adequacy Ratio of Banks Listed in Indonesia Stock Exchange

The purpose of this study is to conclude the factors that affect bank capital adequacy ratios. The sample used is 42 banks listed on the Indonesia Stock Exchange in 2015-2019. The analysis method used was panel data regression and using purposive sampling for the sampling technique. The independent variables in this study are loan loss reserves, return on equity, bank size liquidity ratio and loan ratio, and capital adequacy ratio is the dependent variable. The results show that bank size and the return on equity have a positive effect on capital adequacy ratio, while loan ratio has a negative effect on capital adequacy ratio. The liquidity ratio and loan loss reserve have no effect on the capital adequacy ratio. It is expected that the results of this study will provide a reference for companies to understand the factors that affect capital adequacy. Managerial implications: Banking companies are expected to increase the total number of assets held, increase return on equity and reduce bank loan ratios to avoid the risk of bad credit.

The effect of loan-loss provision, non-performing loans and third-party fund on capital adequacy ratio

This research was conducted in connection with the effective enactment of International Financial Accounting Standard IFRS 2020 to improve the concept of hedging accounting as well as basic measurement and classification of financial instruments. IFRS carries the concept of Expected loss backup which begins to acknowledge losses if there is a potential failure to pay even though it has not really happened, allowing the bank to form a larger loan-loss provision. The loan-loss provision is formed based on the number of failed pays in credits indicated by the ratio of Non-Performing Loans (NPLs). Fund distribution can be regulated by the Third-party Fund (TPF). The increasing number of loan-loss provisions and NPLs are feared to affect capital conditions for the bank. Therefore, the study aims to determine the partial and simultaneous influence of the loan-loss provision, Non-Performing Loans (NPLs), and third-party Fund (TPF) against the bank's capital adequacy ratio (CAR). The samples in this study are central government-owned banks, namely Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia, and Bank Tabungan Negara period from 2011 to 2018. Data taken is a data time series of the quarterly financial statements published by the respective online website of the bank. The analysis used is a multiple linear regression analysis using SPSS Tools version 21 and Microsoft Excel. The results showed that a partial loan-loss provision had no significant effect on the bank's capital adequacy ratio, while the Non-Performing Loans (NPLs) and the Third-party Fund (TPF) were partially influential of the bank's capital adequacy ratio. Simultaneously the three independent variables have a significant effect on the dependent variable capital adequacy ratio (CAR).