Bank-level Data Research Articles

Bank efficiency and access to credit: International evidence

This paper examines the impact of bank efficiency on access to credit. We test the hypothesis that higher bank efficiency, meaning a better ability of banks to operate at lower costs, favors access to credit for firms. To this end, we perform a cross-country analysis with firm-level data on access to credit and bank-level data to compute bank efficiency, using a sample of about 54,000 firms from 76 countries. We find that greater bank efficiency improves access to credit for firms. The beneficial impact of bank efficiency to alleviate credit constraints takes place through the demand channel by reducing borrower discouragement to apply for a loan. Whereas the positive impact of bank efficiency on credit access is observed for firms of all sizes, the effect tends to be more pronounced in countries with a better economic and institutional framework. Our results therefore support policies favouring bank efficiency to enhance access to credit.

Financial inclusion and banking stability: Does interest rate repression matter?

The role of interest rate repression in affecting banks’ behavior has been well-studied in the literature. What has not been examined is how financial inclusion affects this relationship. Using cross-country data, we test the association between financial inclusion and banking stability in the presence of interest rate repression. Using bank-level data, we find that financial inclusion exerts a positive and statistically significant impact on banking stability, notwithstanding interest rate repression. The findings support the fact that financial inclusion is beneficial for banking stability, even after accounting for interest rate controls.

Basel III Capital Regulations and Bank Efficiency: Evidence from Selected African Countries

The core function of a commercial bank is the provision of credit facilities to its customers and to keep the flow and cycle of economic and financial resources balanced. Banks can only perform these functions if they are well regulated and efficient. The main focus of this study is to analyse the efficiency of African banks, most importantly after the 2008 global financial crisis when the Basel III regulations were popularly adopted by banks globally. The research focus was examined in two ways, the first part focused on investigating the impact of the Basel III capital regulations on the operational and investment efficiency of African banks by using the random effects and pooled ordinary least square panel data regression models. The second part examined if the African banks are indeed efficient by analysing their level of efficiency using the input-oriented DEA approach. The study used audited bank-level data from 45 listed banks operating in six African nations, namely, South Africa, Nigeria, Kenya, Tanzania, Uganda and Malawi, that have adopted the Basel III Accord for the period from 2010 to 2019. The bank-level data were obtained from the IRESS database. The findings revealed that capital buffer premiums significantly affect the operating and investment efficiency of African banks positively. This relationship implies that the capital buffer premium does not only serve as cushion capital against financial, market and economic shocks but also improves the banks’ efficiency by influencing the banks’ decisions and perspective on cost containment strategies. Another key finding is the positive influence the liquidity coverage ratio has on banks’ operational efficiency. The implication of this relationship may simply mean that African banks with well-performing liquidity ratios are efficient in their operations with the ability to meet their short-term obligations such as meeting customers’ credit needs, unannounced depositors’ withdrawals and creditors’ repayments, amongst others. This result could well be interpreted that adopting stricter liquidity requirements creates a liquidity buffer for African banks, giving them cushion confidence to undertake profitable and high-yielding projects, which invariably lead to increased profitability and operational efficiency. Furthermore, the DEA results showed that the sampled banks are operationally efficient with an aggregate of 84.8%, and for their investment efficiency, an aggregate of 94.9%. These findings suggest that African banks are largely efficient and can survive any possible financial or economic crisis. It can be put forward that it is probable that banks that are yet to adopt the Basel III Accord or strengthen their capital and liquidity base, are less efficient and might fail during a global crisis. The current work suggests some appropriate policy-based recommendations.

Examine the credit channel of the monetary policy transmission mechanism in an emerging market economy: the case of South Africa

PurposeThe purpose of this study is to analyze commercial bank-level data to examine a credit channel of the monetary policy transmission mechanism in emerging economies, such as South Africa from BRICS countries. Among the important questions that central banks, economists and policymakers have raised in this area are: Do bank characteristics and macroeconomic variables influence credit supply in South Africa? Do bank characteristics and macroeconomic variables interact to influence credit supply in South Africa?Design/methodology/approachStatic panel data with pooled OLS, a random effect model and the fixed-effect model are used for data analysis. Using a sample of 50 commercial banks from South Africa over 10 years from 2009 to 2018. The statistical software Stata is utilized for data analysis.FindingsThe conclusion of this study shows that in South Africa, the loan amount has a strong and positive macroeconomic variable inflation effect. The outcomes of the study also revealed that in South Africa, there is a strong but negative association between interaction macroeconomic variables inflation and bank characteristic liquidity ratio on the loan amount.Originality/valueThe authors contribute to the existing literature by identifying the key determinants of monetary policy transmission channels through credit in South Africa and, furthermore, through a country-level data analysis and disaggregation at the commercial bank level, as well as economic conditions.

Financial Globalization and Bank Lending: The Limits of Domestic Monetary Policy

AbstractExploring bank-level data from a small open economy, we present evidence that global funding conditions limit the effectiveness of domestic monetary policy in terms of shaping both the volume and the riskiness of bank lending. We show that more favorable global funding conditions associated with a local currency appreciation encourage banks to increase lending, leverage up, take more risks, and thus insulate themselves from lean-against-the-wind domestic monetary policy. These results support the existence of a risk-taking channel of currency appreciation at the bank level.

International spillovers from US monetary policy: Evidence from Asian bank-level data

We investigate spillovers from US monetary policy to bank lending in Asia. When Asian banks use funding denominated in US dollars and other currencies, a tightening of US monetary policy will contract bank loan supply via funding volumes/costs. Panel regressions demonstrate such effects on bank lending volumes and prices in Asia, holding constant local economic conditions. Supplementary results are consistent with transmission channels via funding conditions. Our results extend work on the impact of US monetary policy on international inter-bank funding flows and are consistent with several implications from findings in that literature.

Foreign exchange rate shocks and stabilizing role of interbank markets: evidence from Turkey

ABSTRACT We study the transmission of exchange rate shocks in the Turkish interbank loan market using high-frequency bank-level data. Our results suggest that interbank market plays a stabilizing role: following large domestic currency depreciations, banks with a higher share of foreign currency liabilities borrow more in the interbank market, with a higher but insignificant effect on borrowing costs. The results are stronger the larger the exchange rate shock is and the lower the capital adequacy or liquidity ratios of borrower banks. Interbank markets play a weaker stabilizing role for banks with higher short-term rollover risks.

Did the COVID-19 pandemic amplify the positive impact of income diversification on the profitability of European banks?

Research background: The contribution of banks? non-interest income to the total income becomes particularly important in the face of a severe financial crisis, usually accompanied by burdensome restrictions in economic activity, insolvencies of enterprises and households and low interest rates of central banks. Purpose of the article: This study investigates banks in 40 European countries to determine whether non-interest income had a significant impact on the bank?s profitability and whether the severity of the COVID-19 pandemic influences the form of this relationship. Methods: This study used a linear cross-section model using bank-level data. In the model, the bank?s profitability was regressed with the measure of income diversification, controlling for the pandemic?s intensity and the state of the country?s economy and bank characteristics. Banking data were obtained from the S&P Global MI. The Oxford COVID-19 Government Response Tracker (Hale et al., 2021, pp. 529?538) was the source of pandemic-related variables. Findings & value added: The obtained results indicate that the increases in non-interest income share in the bank?s total income have a statistically significant positive impact on profitability for the European banking sector. The dependence of profitability on diversification was stronger with the growing adverse effects of the pandemic. Our results are in line with those for the US banks (Li et al., 2021) and the European Central Bank Banking Supervision?s assessment that higher non-interest income has allowed banks? profitability in the euro area to be maintained at a pre-pandemic level (ECB, 2021). In addition, the study contributes to previous literature by testing the impact of the severity of the COVID-19 pandemic on the relationship between income diversification and bank profitability in 40 European countries.

U.S. banks’ lending, financial stability, and text-based sentiment analysis

We examine the impact of investor sentiment on bank credit and financial stability. We also investigate how loan growth may affect bank stability. We use a large panel data set of U.S. commercial banks over the period 1999Q1–2015Q4, using bank-level data. Investor sentiment is proxied by two novel but alternative measures based on textual analysis. First, we employ the sentiment measure constructed by García (2013) based on the fraction of positive and negative words in two columns of financial news from the New York Times. Second, we employ the text-based measure of uncertainty constructed by Manela and Moreira (2017) called News Implied Volatility, which uses front-page articles of the Wall Street Journal. The results show that banks’ lending falls when investor sentiment is low, while this effect is more pronounced when banks hold a higher level of credit risk. These effects are more pronounced during recessions with loan growth also responding negatively to the anxiety of investors throughout recessions. Finally, we show that the Great Financial Crisis had a negative effect on investor sentiment leading to a decline in U.S. lending behavior and an increase in the U.S. banking sector instability.

The impact of the FinTech revolution on the future of banking: Opportunities and risks

The financial technologies (FinTech) revolution is in full swing globally. In this paper, we review the burgeoning literature on FinTech and FinTech-enabled services, focusing on the opportunities and risks for banks. Using high quality bank level data from 115 countries around the world for the past 16 years, we compute statistical moments of some key indicators of the changing banking landscape in the FinTech era. Our preliminary findings suggest that it is unlikely that FinTech lenders will replace banks, perhaps because banks are developing their own FinTech platforms or working with FinTech start-ups. We also showcase how regulation, global infrastructures and geopolitical frictions will shape the future of banking. We identify some promising research ideas; we also summarize some key implications, from existing research, for policy makers and practitioners.

DO ISLAMIC BANKS IN INDONESIA TAKE EXCESSIVE RISK IN THEIR FINANCING ACTIVITIES?

This study analyzes the risk-taking behavior of Indonesian Islamic Banks by examining whether the relation between financing Growth rate and non-performing financing (NPF). We employ threshold regression models and bank-level data of 24 Islamic banks (full-fledged Islamic banks and Islamic banking windows) covering the period from 2009 to 2019. We find evidence for the excessive risk-taking of Islamic Banks. More specifically, while the relation between NPF and FGR is negative when the one-lagged NPF is below the threshold (estimated to be 5.42%), it turns positive once it is above the threshold. This means that banks with NPF above the 5.42 percent threshold tend to take risky loans.

Bank bailouts and economic growth: Evidence from cross-country, cross-industry data

In this paper, we revisit the question of how bank bailouts affect economic growth. We adopt a broad concept of bailouts, which includes both capital injections and liquidity support to the banking system. We employ an identification strategy that controls for the various dimensions of bailout endogeneity and find that liquidity support has a significant positive real economic effect. The effect of recapitalizations per se is not statistically significant, but they reinforce the positive impact of liquidity interventions. Utilizing bank-level data, we provide evidence that this is the case because better-capitalized banks and banks in significantly recapitalized systems have a higher propensity to lend, thus raising aggregate-level real economic growth.

Uncertainty and Banks’ Security Holdings

The paper enriches the existing literature on financial intermediaries’ operations in the face of uncertainty by empirically examining the impact of banking uncertainty on banks’ security holdings. Using bank-level data in Vietnam during 2007–2019 to compute a micro uncertainty proxy based on the dispersion of bank shocks, we document that banking uncertainty tends to enhance total security holdings at banks. Decomposing aggregate securities into disaggregate components, we find that safer investments (including government bonds and financial institution bonds) dominate the overall impact of banking uncertainty on security holdings, which completely offset a drop in the volume of riskier investments (including corporate bonds and stocks) in times of higher uncertainty. Furthermore, our analysis reveals that the impact of banking uncertainty on all security holdings is stronger at riskier banks, thereby implying that bank behavior is likely attributable to the precautionary motive.

No man, No cry? Gender equality in access to credit and financial stability

Literature has found that women outperform men in terms of loan repayment. We can therefore question whether more gender equality in access to credit fosters financial stability. We test this hypothesis using cross-country data on financial inclusion from the World Bank's Global Findex database and bank-level data on financial stability. We perform regressions at the bank level to check the existence of a relation between the female-to-male ratio of access to credit and financial stability. We find evidence of a negative relation between the gender gap in access to credit and financial stability. Therefore our findings support the view that enhancing access to credit for women relative to men is beneficial for financial stability.

Effective monetary policy, banks' pricing behaviour and human development in Africa

This paper empirically examines the effect of monetary policy effectiveness on human development in Africa. We employ both micro-bank level and macro-country level data. Bank level data are taken from the bank scope database maintained by Fitch/IBCA/Bureau Van Dijk. Series are yearly, covering a sample of 320 banks across 29 African countries. Panel fixed effects, random effects and IV regressions were estimated for the period 2002 to 2013. For our IV estimation, the paper explores an instrumental variable based on the fact that effective monetary policy is conditional on the independence of the central bank. The regression results that ensued suggest that; first, effective monetary policy translates to high banks' loan and deposit prices. Building on these results and employing various specifications of banks' pricing strategy, the second test suggests that, high banks' pricing induced by effective monetary policy tends to increase human development. Results of the net effects eventually suggest that effective monetary policy, overall, does not improve human development.

Financial Development and the Lending Channel of Monetary Policy Transmission: Evidence from Cote D’Ivoire Using Bank-Level Data

Financial Development and the Lending Channel of Monetary Policy Transmission: Evidence from Cote D’Ivoire Using Bank-Level Data

Banks' capital buffer, profitability and risk of failure: the effect of regulation, supervision and the business cycle

In this article, we apply the GMM technique on dynamic panels, using both bank-level data and country-level data for the three largest European economies (Germany, the UK and France) during the period 2005-2013 to investigate the impact of regulation, supervision and the business cycle on capital buffers, banking profitability and the risk of failure. Our results provide three major findings. First, the regulation indicators have a negative impact on bank profitability. When the supervisory authority imposes restrictions on banking activities, managers become more risk-averse, the bank's risk-taking decreases and, as a consequence, profitability decreases. Second, the measures adopted by the Basel Committee on Banking Supervision (the Basel III Accord) regarding the management of capital buffers over the business cycle are very important in order to fortify the banking system's stability. Third, regulation and supervision perform differently, depending on the indicators of profitability and the risk of failure.

Bank Stability and Its Determinants in The Nepalese Banking Industry

This paper investigates bank stability and its bank-specific, industry-specific, macroeconomic and institutional determinants for the Nepalese banking industry. The study employs the system GMM to a panel of bank-level data covering the period from 2004-2018. The results show that the stability of the Nepalese banking industry improved during the early years of the study period, i.e., 2004-2007; however, it exhibited a decaying trend for the rest of the study period. The analysis reveals that the major factors responsible for this deterioration are capital adequacy, asset quality, and earnings of the banks. Most of the dimensions have shown improvements during the initial years of the study period; however, this trend reversed post-2007.The study groups the banks into three categories: stable, moderately stable, and less stable banks as per their respective stability score. The estimation results indicate that a positive bank stability persistence exists in the Nepalese banking industry. Results suggest that credit growth has a negative impact on the stability of the banks. The results of the study support the concentration-stability hypothesis. Income diversification appears to have a positive impact on the stability of the banks. Findings disclose that inflation is playing a crucial role in impacting the stability of the banks. The study reveals that the GFC had no significant impact on the stability of the Nepalese banking industry.

The impact of macroprudential policies on bank risk under economic uncertainty: Evidence from emerging Asian economies

This paper examines the impact of macroprudential policies on the nexus between economic uncertainty and bank risk in emerging Asian economies. We construct our index of economic uncertainty by applying the Generalized Autoregressive Conditional Heteroskedasticity (GARCH)-in-mean model to a series of important macroeconomic variables, and borrow macroprudential policy indices from Cerutti et al. (2017) and Alam et al. (2019). Using bank-level panel data from approximately 600 commercial banks in 11 emerging Asian economies during the period 2000–2016, we find consistent evidence that bank risk increases with economic uncertainty, while macroprudential measures play an ameliorative role in uncertainty-induced bank risk. Our baseline findings are largely driven by macroprudential measures that aim to dampen the credit cycle more than those that target increasing the resilience of the banking sector. Our further analyses of the heterogeneous impacts of macroprudential measures by specific type on the risk of banks show that liquidity-based instruments, reserve requirements and currency instruments play a more conspicuous role in the economic uncertainty‒bank risk nexus than capital-based and asset-side macroprudential instruments.

Bank asset allocation and finance structure under uncertainty in Vietnam

PurposeThe paper investigates the link between uncertainty and banks' balance sheet reactions.Design/methodology/approachThe study employs bank-level data in Vietnam during 2007–2019 to measure micro uncertainty in banking through the dispersion of bank-level shocks. Empirical regressions are performed by the two-step system generalized method of moments (GMM) estimator and then verified using the least squares dummy variable corrected (LSDVC) technique.FindingsBanks tend to reduce risky loans, hoard more liquidity and decrease financial leverage in response to higher uncertainty. The relationship between uncertainty and banks' balance sheet reactions is more pronounced for banks that suffer more credit risk and overall risk, thus supporting the precautionary motive of banks. Additionally, uncertainty also leads to a decline in the Net Stable Funding Ratio (NSFR) under Basel III, implying that banks may fail to find a more stable source of funding and be more subject to maturity mismatch during periods of higher uncertainty.Originality/valueThe paper is the first to explore comprehensively the relationship between uncertainty and banks' balance sheet aspects as simultaneously estimated by bank loans, bank liquidity and bank leverage. While many other uncertainty measures display aggregate uncertainty sources, an important contribution in this study is to anatomize uncertainty originating exclusively from banking at a disaggregate level. Besides, shedding light on how uncertainty drives bank funding liquidity as captured by the NSFR under Basel III is entirely novel in the literature.