Bank Risk Research Articles

Financial Risk Determinants in Islamic Rural Banks: Static and Dynamic Models

This study aims to determine the effect of financial performance on the financial risk of the Islamic Rural Bank (IRB) in Indonesia. The data period used from 2012 to 2019 on 65 IRBs using static and dynamic panels. The static panel test uses the common, fixed, and random effects, while the static panel uses the SYS-GMM test. The test results of 8 models on the static panel show that the best model is to use the random effect. The dynamic panel test shows the results of the AB test, Sargan test, PLS test, and FE test; it can be seen that the equation model has a consistent estimator. The data processing results show that the activities of the IRB, profitability, and economic growth have a negative relationship to the financial risk of the IRB. Then, the efficiency level of the IRB and inflation did not affect its financial risk. Finally, the policy implications of IRB management should adopt a cautious approach to financial risk management by recognising the inherent dangers in funding and financing policies.

The role of financing tools in reducing banking risks

The role of financing tools in reducing banking risks

Impact of Credit and Liquidity Risk on Profitability: The Conventional Rural Banks in Riau Islands Province

The Covid-19 pandemic drastically changed the world economy, resulting in Indonesia experiencing an economic decline and deflation. The banking industry played a significant role in building the economy, so the financial services authority issued a circular letter regarding the provisions for implementing risk management for conventional rural banks and the new rules for implementing credit restructuring. This study analyzed the impact of credit and liquidity risk of conventional rural banks in the Riau Islands on profitability. Data were extracted from the financial services authority publication report of 42 conventional rural banks in Riau Islands during 2017-2021. The results of panel data analysis with the fixed effect model (FEM) showed that all risks were significantly associated with profitability (ROA), the authors found that the capital adequacy ratio had a positive significance, and the non-performing loan, liquid asset to total asset, loan to deposit ratio, and cash to deposit ratio harmed ROA. The results showed that bank risk management was needed to maintain the profitability of rural banks in Riau Islands Province.

Determinants of Non-Performing Financing Risk in Islamic Commercial Banks in Indonesia

Determinants of Non-Performing Financing Risk in Islamic Commercial Banks in Indonesia

Do Competition, Size, and Macro Variables Impact Bank Risk?

The paper investigates the correlation between bank competition, performance, and risk-taking behavior in MENA economies. Furthermore, it explores the risk level associated with dual banking as well as the bidirectional connectedness of competition and jeopardy in terms of size, GDP, and inflation rate. This work employs Generalised Method Moments (GMM) for regression findings and Two-Stage Least Squares (2SLS) for robustness tests. It uses an unbalanced panel dataset from 256 banks and 14 MENA countries from the year 2011 to 2022. According to the study’s findings, financial stability improves, and bank risk-taking decreases with less bank competition. The findings of this investigation corroborate the competition fragility theory. The competition square concept suggests that in a market with competition, risk will eventually rise. In terms of economic progression, risk-taking behavior is exactly the reverse of bank competition. Again, the finding shows that good performance reduces the bank’s risk, finally turning to greater financial stability. Furthermore, there is a substantial association between inflation rates and the extent of banks’ risk-taking activity. In a competitive market scenario, MENA countries inflation rate risk-taking behavior initially increases and then declines over time, while bank size exhibits a similar trend in the near term. When the inflation rate rises, banks’ risk-taking behavior initially decreases and then rises over time. This research will provide policymakers in MENA nations with a better grasp of how to establish strategies that benefit the banking environment.

Effect of Business Cycle, Income Diversification, and Financial Ratios on Bank Risk in the ASEAN Region

Research Aims: This research aims to analyze the influence of the business cycle, income diversification, and financial ratios as proxied by profitability and liquidity on the level of banking risk adjustment in ASEAN in the 2020-2022 period. Design/methodology/approach: The research used a sample of 93 banks in the ASEAN region. Sample selection applied purposive sampling techniques based on certain criteria in the Philippines, Indonesia, Malaysia, Singapore, Thailand and Vietnam. The estimation technique used is the Ordinary Least Square method on panel data to analyze the model being built. Research Findings: Research shows that the relationship between the business cycle and bank risk is negative. This means that when the economy is in a contraction phase, bank risk will decrease and vice versa. Then, banks that diversify their income can reduce bank risk. On the other hand, the influence of profitability and liquidity has a negative effect, meaning that a high level of income accompanied by liquid bank assets has the potential to reduce the level of bank risk. Apart from that, there are several other aspects that banks need to pay attention to in anticipating emerging risks, including previous year's credit risk, business size, loan loss reserves, asset growth and financial freedom. Theoretical Contribution/Originality: The originality of the research lies in its comprehensive approach to analyzing the impact of business cycles, income diversification, and financial ratios on bank risk in the ASEAN region. The study's methodology, variables, and empirical evidence all contribute to its originality and relevance to the existing literature Keywords: Revenue Diversification, Liquidity, Profitability, Bank Risk, Business Cycle

Perbandingan Kinerja Keuangan Menggunakan Risiko Pasar pada PT PAN Indonesia Bank Sebelum dan Selama Covid-19 Periode 2017-2022

This research aims at determining the difference in the results of market risk assessments at PT Pan Indonesia Bank Before and During Covid-19 Period 2017-2022. The data used in this research are secondary data obtained from the Financial Statements of PT Pan Indonesia Bank. The data analysis method used is Inherent Risk Assessment of Market Risk in accordance with SEBI No.13/24/DPNP and SEOJK No.14/SEOJK.03/2017. The results in this research show that there are differences in the acquisition of market risk of PT Pan Indonesia Bank Before and During Covid-19. Market risk rating before Covid-19 (2017-2019) is rating 1 (Low) in 2017 then increased to a rating of 2 (Low to Moderate) in 2018 and fell again in 2019 to a rating of 1 (Low). Meanwhile, During Covid-19 (2020-2022) bank's market risk stabilized with a rating of 1 (Low).

Analysis of banking risks in the context of financial stability and development of economic structures in Ukraine

Analysis of banking risks in the context of financial stability and development of economic structures in Ukraine

The effect of industry sector and profit-loss sharing financing on credit risk of Islamic banks in Indonesia considering COVID-19 pandemic

Purpose The COVID-19 pandemic has affected economic activity both globally and nationally, which also has an impact to banking sector and Islamic banking is no exception. This study aims to see how the impact of Islamic bank financing in seven sectors affected by the COVID-19 to the credit risk of Indonesian Islamic banks. In addition, this study also tries to see whether the proportion of mudharabah-musharaka or profit-loss sharing (PLS) financing also affects credit risk in Indonesian Islamic banks. Design/methodology/approach This study uses fixed effect panel data regression over the period 2011–2020. Findings The results of this study show that wholesale and retail trade financing will increase credit risk in Indonesian Islamic banks as a policy implication. In terms of the proportion of PLS financing, it shows that a larger share of PLS financing will reduce credit risk in Islamic banks. Originality/value This paper demonstrates that despite the industry’s perception of PLS as riskier than murabaha-based instruments. According to the research, PLS financing will lower credit risk in Islamic banks. This study found that PLS contributes to overall economic stability by shifting the function of Islamic banks from a simple lending body to an active market catalyst/manager/consultant to market players seeking financial aid.

Climate risk in banks – the case of Polish banking sector

Climate risk in banks – the case of Polish banking sector

Dynamic panel data analysis of the impact of governance on bank capital structure in Indonesia

The banking industry plays a crucial role in driving the Indonesian economy. Therefore, any financial upheaval within this sector would have a significant influence on the overall economy. Hence, this study examines the capital composition of banking institutions in Indonesia to assess the financial soundness of the banks. A bank’s susceptibility to default will adversely affect client confidence in the bank. This study investigates the influence of governance attributes, such as board size, board meeting frequency, risk committee presence, institutional ownership, and independent committee existence, on the capital structure of Indonesian banks. 31 samples were intentionally chosen using purposeful sampling. Data estimation was performed using a two-step Arellano-Bond Generalized Method of Moments (GMM) estimator. The findings suggest that the bank risk committee, institutional ownership, and independent committee exert a notable and favorable influence on the capital structure of banks in Indonesia. Nevertheless, the size of the board and the frequency of board meetings do not exert a substantial impact. The size of the board and the use of leverage have no substantial impact. Developing efficient corporate governance procedures is essential for ensuring the bank’s financial stability. This involves maximizing the effectiveness of the risk committee, institutional ownership, and independent committee. AcknowledgmentThis paper is funded by PPM-PTM Grants of the Ministry of Education, Culture, Research and Technology of 2023 (03/SP2H/RT-MONO/LL4/2023).

The Impact Of Credit Risk On The Financial Performance Of Banks In Indonesia Listed On The Indonesian Stock Exchange For The Period 2018 - 2022

Banking activities collect funds from customers and distribute credit to customers in the form of loans that are added with interest for the bank's opinion. Lending activities provided by banks have risks that must be mitigated to avoid large losses and adversely affect the bank's financial performance. This study used panel data regression method with sample of 35 Indonesian Banks listed on the Indonesia Stock Exchange with the period 2018 - 2022. Referring to the main research, bank financial performance is measured by return on assets and net interest margin, while bank risk is measured by the variables non-performing loans, capital adequacy ratio, loan loss provision ratio, and cost per loan ratio, this study also added new control variables, such as bank size and leverage. The results of this study found that there is an impact between NPL with ROA, LLPR with ROA, CAR with NIM, and CPLR with NIM. While there is no impact of CAR with ROA, CPLR with ROA, NPL with NIM, and LLPR with NIM.

Green Accounting Discourse as an Effort to Mitigate Climate Change Risk in Banks in Pandaan District

Green Accounting Discourse as an Effort to Mitigate Climate Change Risk in Banks in Pandaan District

The Impact of Central Bank Policy on Aspects of Bank Sharia Financial Behavior in the Money Market

Central bank policy has an important role in influencing the behavior of banks in the money market. This is important because banking movements can affect market stability and the economy as a whole. Therefore, analysis of the impact of central bank policy on bank behavior is very important to expand understanding of how monetary policy can influence the actions of banks participating in money markets. The research results show that central bank policies such as changes in interest rates, mandatory reserve policies, and market intervention have a significant impact on bank behavior. Interest rates set by the central bank can affect bank lending and investment interest, while mandatory reserve policies can affect banks' liquidity and their risk management strategies in the money market. This study also emphasizes the importance of transparency and communication from central banks in implementing policies. Clarity in policy can indirectly help in managing market expectations and help banks respond to changes in monetary policy. This research can be the basis for further research exploring how central bank policies can improve risk and liquidity management, as well as the stability of money markets and the economy. In conclusion, central bank policy has a significant impact on bank behavior in the money market, and policy communication and transparency are important factors in bank risk and liquidity management in order to maintain money market stability in the future.

Effects of Negative Interest Rates on Stability and Profitability of Commercial Banks

The article examines the impact of the European Central Bank's (ECB) negative interest rate policy (NIRP) on commercial banks in Europe. It traces the historical context of the policy back to the financial market and banking crises, which eroded trust among banks, leading to liquidity issues and economic downturns. To counteract this, the ECB introduced negative interest rates in 2014, aiming to stimulate the economy.The research question focuses on how NIRP affects banks' annual reports, particularly concerning total assets, credit and risk volumes, proprietary trading, profits, and stability. The hypothesis suggests that NIRP significantly increases risks in bank profitability and stability. Analysis spanning from 2014 to 2022 compares negative interest rate changes with bank balance sheet and profit/loss account developments.Economic theory predicts that negative interest rates decrease bank profits but increase lending activity. Statistical analysis confirms a correlation between NIRP and increased credit risk volume, as well as a shift from bonds to shares in proprietary trading. However, there is no statistical evidence linking NIRP with profit and profitability declines.In conclusion, while NIRP does lead to a significant increase in credit risk volume, it does not halt falling profits and profitability. Therefore, the hypothesis that NIRP increases risks for commercial banks' profitability and stability holds true, posing a threat to financial stability.

Women directors’ attributes and demographics: New insights into bank risk

This study examines the impact of women directors’ representation and characteristics on bank risk in a unique sample of 12 developing countries with dual banking systems. We examine different women’s leadership and monitoring attributes (leadership and independence) and demographic attributes (educational level and background, foreign directors, and financial expertise). Our results indicate that women directors significantly reduce bank risk, regardless of bank type. Foreign female directors and the financial expertise of women directors are both associated with high bank risk while the relation is inverted for independent women directors. We also find that women directors with high educational qualifications (i.e., postgraduate level) and those holding qualifications in accounting and finance are negatively associated with bank risk. Considering bank type, women on the board have an overall adverse impact on risk in Islamic banks, showing high bank risk across various risk indicators and directors’ attributes/demographics.

A Study of Risk and Efficiency in Public and Private Sector Banks in India

This study aims to compare the risk profiles and operational efficiencies between public and private sector banks in India. By analysing various financial metrics and employing advanced statistical techniques, we seek to uncover the underlying factors contributing to the differences in performance between these two sectors. The investigation encompasses a comprehensive review of both quantitative and qualitative data, including but not limited to, capital adequacy ratios, non-performing assets (NPAs), return on assets (ROA), and customer satisfaction indices. Furthermore, the study delves into the regulatory environment, technological adoption, and strategic initiatives undertaken by these banks to mitigate risks and enhance efficiency. Through this comparative analysis, we aim to provide insights that could inform policy decisions, strategic planning, and risk management practices within the banking industry in India. Keywords: Banking sector, Risk management, Operational efficiency, Public vs. private banks, financial performance, Regulatory environment, Technological adoption.

Bank FinTech and bank performance: evidence from an emerging market

Purpose This study aims to explore the effects of internal financial technology (FinTech) integration within Jordanian banks on their performance metrics, specifically focusing on profitability, risk-taking and stock returns. Design/methodology/approach Using panel data analysis, this study investigates the financial performance of 13 listed commercial banks in Jordan over a decade, from 2010 to 2019, to examine the hypothesized impacts of bank FinTech developments. In addition, several robustness tests addressing potential issues of endogeneity and autocorrelation are conducted to enhance the reliability of the results. Findings The results reveal that the bank FinTech development significantly enhances bank profitability and inversely affects risk-taking levels, indicating a substantial and positive impact on financial performance and stability. However, the results suggest no significant evidence of the effect of bank FinTech development on stock return. Practical implications The findings advocate for Jordanian commercial banks to continue and expand their investment in FinTech innovations, highlighting the crucial role these technologies play in enhancing financial performance and reducing bank risks. Additionally, these findings suggest that regulatory bodies and policymakers should develop and enhance institutional and regulatory environments to support and guide the FinTech evolution within the banking sector. Originality/value This study sheds light on the relatively under-researched area of internal bank FinTech. It provides critical insights into how FinTech integration within banks contributes to their profitability and stability, offering another perspective that enriches the FinTech literature. This contribution is essential for devising future strategies, developing theoretical frameworks and informing policy decisions in the FinTech domain.

THE EFFECT OF BANK-SPECIFIC AND BANK RISK ON BANK STABILITY AS MEASURED BY NPL OF THE BANGLADESHI COMMERCIAL BANK

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.

Risiko Bank, Struktur Kepemilikan dan Ukuran Bank terhadap Kinerja Keuangan pada Perusahaan Perbankan periode 2020-2022

This research aims to analyze the impact of bank risk, ownership structure and bank size on the financial performance of banking companies. Evaluation of financial performance using profitability ratio analysis is the main method for assessing financial management efficiency. Risks are identified as potential losses or harm that can be predicted in advance with relevant data. Differences in ownership structure impact the policies taken, while company size results in different business risks. This research adopted a quantitative approach with a sample of 28 respondents selected through purposive sampling. Data analysis was carried out using multiple linear regression. The research results show that bank risk has a negative and significant effect on financial performance, while ownership structure has a negative but not significant effect. On the other hand, bank size has a positive and significant influence on financial performance. Overall, bank risk, ownership structure and bank size simultaneously have a positive and significant impact on financial performance. In conclusion, this research provides a deeper understanding of the factors that influence the financial performance of banking companies. Keywords: Financial Performance, Bank Risk, Ownership Structure, Bank Size