Bank Soundness Research Articles

Analysis of Banking Risk, Good Corporate Governance, Capital and Earning Influences on the Indonesia’s Commercial Bank Performances

This study aims to analyze the effect of commercial bank soundness in Indonesia based on Bank Indonesia regulation number 13/24/DPNP date 25 October 2011, which concern on the implementation guide for Bank Regulation in Indonesia number 13/1/PBI/ 2011 on assessment of bank healthy. In general, those assessments cover risks, good corporate governance (GCG), earning and capital. While, the performance of commercial bank is measured based on credit growth and profit growth. A total of 45 commercial banks listed on the Indonesia Stock Exchange are the population of the study which will be analyzed using the structural equation modeling program - partial least square (SEM-PLS). The results show that credit risk, GCG and earnings have no effect on bank’s performance in Indonesia. Market risk, liquidity risk and capital negatively affect the performance of commercial banks in Indonesia. This research is expected to contribute to the policy making of central banks and also commercial bank organization in particular to improve their performance. This research also contributes to the theory by enriching the discussion on related themes.

PERFORMANCE BANK BNI SYARIAH DI MASA PANDEMI COVID-19

The performance of Islamic banks during the Covid-19 pandemic has had an impact on the financial soundness of Islamic Banks. Islamic Banks in Indonesia should restructure the Financing (PYD) which results in the acquisition of revenue and net profit received by the bank. The aims of this study are to analyze the soundness of Bank BNI Syariah using the CAMEL, RGEC method, the level of cost efficiency and profitability. Then also measured the potential for BNIS bankruptcy with the Altman Z-Score model. The potential risk of bankruptcy in Islamic Banks is very possible if bank management during the Covid-19 pandemic are not carried out properly and professionally. Secondary data is used during the period 2015 to 2020 to analyze the performance of Islamic Banks before the pandemic and during the pandemic. The results of the CAMEL and RGEC analysis show that soundness conditions varied from "Not Very Good" to "Very Good" from 2015 to 2020. In 2020 the soundness condition of BNIS is "Fairly Good". Meanwhile, the Altman Z-Score shows that BNIS is experiencing a “Not Bankrupt” condition, the level of bank efficiency is “High” and at analysis of profitability as reflected by the ROA ratio, ROE during the pandemic has decreased.

Analysis of Factors Affecting Liquidity of Islamic Banking Listed on the Indonesia Stock Exchange

The purpose of this study is to investigate the effect of Non-Performing Financing, Third Party Funds, Financial To Funding Ratio, Macroprudential Intermediation Ratio and Macroprudential Liquidity Buffer on the liquidity of Islamic Banking listed on the Indonesia Stock Exchange List in the 3rd and 4th quarters of 2018 to the 1st and 2nd quarters of 2018. 2019. The research design used is a quantitative approach. The data analyzed is secondary data in the form of quarterly banking financial statements listed on the Indonesia Stock Exchange List for the 3rd and 4th quarters of 2018 to 1st and 2nd quarters of 2019, data for each bank. The population in this study were 15 Islamic banks listed on the Indonesia Stock Exchange List during the study period, with a sample of 12 Islamic banks during 4 quarters of observation, so that the final sample was 48 observational data. The results of the study show that the variables of Non Performing Financing, Financial To Funding Ratio have an influence on the liquidity of Islamic banking. While other variables, namely Third Party Funds, Macroprudential Intermediation Ratio and Macroprudential Liquidity Buffer, have no effect on the liquidity of Islamic Banking. Liquidity management in banking institutions is one aspect that becomes a top priority. Liquidity is a condition where banks are able to meet their obligations as they fall due and banks are able to meet the demand for funds by customers. Banks must be able to maintain their liquidity level in a safe and optimal position in accordance with the bank soundness level parameters set by Bank Indonesia.

Pengaruh Karakteristik Dewan Pengawas Syariah Terhadap Tingkat Financial Soundness Bank Syariah di Indonesia Tahun 2015-2019

This study aims to examine the effect of Shari’ah Supervisory Board characteristics on financial soundness of Islamic banks in Indonesia. This research was conducted by quantitavie method and used data of Islamic banks listed in Financial Service Authority of Indonesia (OJK) at 2015-2019. Total sample was 13 islamic banks for each period. This research used RGEC method as main and newest measurement financial soundness of Indonesian banks. This research also used CAMEL method and Z-Score method as a robustness or additional test. Characteristics of Shari’ah Supervisory Board in this research represented by board size, multi-position, board education levels and meeting frequency.The result of this this study conclude that board size only affects financial soundness of Islamic banks from GCG mechanism and Cash Adequacy Ratio aspects. And multi positions of board will affects financial soundness of Islamic banks from Non Performing Financing, Return On Assets and Operational Expense Toward Operational Income aspects. While, board education levels didn’t have any significant impact on financial soundness of Indonesian Islamic banks in every aspects of RGEC method. And the meeting frequency only affects financial soundness of Indonesian Islamic banks from Operational Expense Toward Operational Income aspects. CAMEL method as the first robustness test showed that all of Shariah Supervisory Board characteristics didn’t have any significant impact on financial soundness of Indonesian Islamic banks while, the Z-Score as the second additional test found that only multi position which was give a significant impact on financial soundness of Indonesian Islamic banks.

Impact of corruption on bank soundness: the moderating impact of Shari’ah supervision

PurposeThis study aims to examine whether the soundness of Islamic banks is differently affected by corruption compared to conventional counterparts. Moreover, the Shari’ah supervisory board (SSB), as a cornerstone of Islamic banking and representing a multi-layer corporate governance model, is expected to moderate the influence of corruption on soundness for Islamic banks.Design/methodology/approachThis study considers a unique sample of 1,528 observations on 71 Islamic banks and 120 conventional banks operating in 11 emerging and developing Muslim countries over the 2010–2017 period. This study uses generalized least squares regression model and the coefficients are estimated by using random-effects estimator. In addition, to overcome a potential endogeneity concern for corruption and bank stability relationship, this study uses Two-Stage Least Squares regression instrumental variable estimator.FindingsThe authors find consistent evidence that higher levels of corruption adversely impact the soundness for conventional banks, in favor of the sand the wheel hypothesis in the corruption–development nexus. However, as expected, this study finds a less negative impact of corruption on soundness of Islamic banks. Moreover, SSB moderates the relationship between corruption and soundness of Islamic banks. The findings are robust to a battery of alternative checks.Research limitations/implicationsFindings of the paper regarding the detrimental impact of corruption on bank soundness justify the urgency of the anti-corruption campaigns in these countries, particularly for conventional banks. Moreover, the findings provide support for the positive contribution of SSBs to overcome the adverse effect of corruption on soundness of Islamic banks and thereby underscoring the need for enforcement and regulatory mechanism for SSBs to be more effective.Originality/valueTo the best of the authors’ knowledge, this is the first study to examine the moderating impact of Shari’ah supervision on the relationship between corruption and soundness of Islamic banks.

Analysis of Soundness Level in the CAMELS Ratio Perspective

Banks in a country have an important role. One of its functions is as a financial intermediary whose operations are for the community. The soundness of banks and their stability are very important because they affect the ups and downs of an economy. It can foster public trust because people are increasingly selective in choosing financial institutions. Bank Syariah Mandiri is the bank with the highest total assets compared to other Islamic banks. The purpose of the study was to determine the level of soundness at Bank Syariah Mandiri during the 2017-2019 period using the CAMELS ratio. The results show that the soundness of Bank Syariah Mandiri Syariah, even though it has a greater total assets than other Islamic banks, is still not in the very healthy category because from the research results, Bank Mandiri Syariah is currently in the healthy category. However, on the sensitivity risk assessment, Bank Syariah Mandiri is in the very healthy category.

Analysis of the Effect of Bank Soundness and Macroeconomics on Financial Distress in Conventional Commercial Banks

This research aims to analyze the effect of bank soundness and macroeconomics on the financial distress of conventional banking in Indonesia in the 2015-2019 period. The bank soundness is measured using the Risk-Based Bank Rating or RGEC method which is proxied by the ratio of non-performing loan (NPL), size of board directors, return on asset (ROA), capital adequacy ratio (CAR). The macroeconomic variable was measured using exchange rate while the dependent variable was measured by Altman Z-Score modification. The population of this research is all conventional banking companies listed on the Indonesian Stock Exchange in 2015-2019. The method used for selecting the sample is purposive sampling. The sample obtained was 37 banks with a five years observation period. This research is using multiple linear regression analysis. The result of this research indicates that the size of the board direction, return on asset, and capital adequacy ratio harms the financial distress of conventional banking in Indonesia in the 2015-2019 period. While the non-performing loan and exchange rate do not affect the financial distress of conventional banking in Indonesia in the 2015-2019 period.

Spatial dependence in small cooperative bank risk behavior and its effects on bank competitiveness and SMEs

AbstractIn this article we consider the effects of the inclusion of spatial dependence in the empirical model measuring small cooperative banks' risk performance. In the presence of cross‐sectional dependence, spatial analysis deals with co‐movement among geographical units, allowing for the evaluation of spillover effects and improving econometric models. The article makes several contributions to the literature. First, we support the hypothesis that the inclusion of spatial terms improves small bank soundness models. Second, with the Z Score used as a proxy for bank soundness, we indirectly test the impacts of relationship lending on small firms, which is a classic tool adopted by small banks to assess the creditworthiness of small firms. Third, since we control for banks' market power, we expand the literature on the relationship between bank risk and market competitive pressure. Finally, we find empirical evidence that bank size does affect the financial standing of small banks.

Financial soundness of Islamic banks: does the structure of the board of directors matter?

Purpose The purpose of this paper is to examine the Board of Directors’ characteristics and their impact on the financial soundness of Islamic banks. Design/methodology/approach Regression analysis is applied to test the impact of the Board of Directors’ characteristics on the financial soundness of Islamic banks, using a panel data set of 67 Islamic banks covering 20 countries from 2005 to 2018. The Z-score indicator is used to evaluate the Islamic banks’ soundness. To check the robustness of the results, this paper uses other dependent variables (CAMEL) than the Z-score. Findings The main results show that the presence of an independent non-executive director negatively impacts the financial soundness of Islamic banks, while the chief executive officer duality practice has a positive effect on it. Other characteristics of the Board of Directors do not significantly impact the financial soundness of Islamic banks (foreign director, institutional director, chairman with a Shari’ah degree, interlocked chairman and the Board of Directors’ size). Practical implications This study aims to fill the gaps in the literature that discuss the Board of Directors’ role in corporate governance and its impact on the financial soundness of Islamic banks. In other words, it shows the role played by the Board of Directors and improves the knowledge of the corporate governance-financial soundness relationship. Plus, managers, investors and regulators may gain evocative insights, particularly those looking to improve their Islamic banks’ soundness by restructuring their boards’ composition. Originality/value This study sheds new light on the literature on Islamic banking by clarifying the relationship between the Board of Directors and the financial soundness of Islamic banks. Contrary to previous research, this paper uses an additional hypothesis stating that a chairman with a Shari’ah degree (Fiqh Muamalt) has a positive impact on the financial soundness of Islamic banks.

ANALISIS TINGKAT KESEHATAN BANK PADA PT. BANK JTRUST INDONESIA TBK DENGAN METODE RISK BASED BANK RATING (RBBR) TAHUN 2014 - 2018

The research is aimed to investigate and analyze the soundness of commercial banks, based on Financial Services Authority Circular Letter Regulation No. 14/SEOJK.03/2017. The sample in this study was PT. Bank JTrust Indonesia Tbk, period 2014-2018. The analytical tool used is the Bank's health report on factors that use the net performing loan (NPL) ratio and the ratio of loans to deposits (LDR), corporate governance factors using self-assessment reports of good corporate governance (GCG), profitability factors with using the ratio of return on assets (ROA) and net interest margin (NIM) and capital factors using the capital adequacy ratio (CAR).The results of this study indicate that from the results of the study, commercial banks, commercial banks with results that are less healthy and unhealthy. Based on the NPL ratio in 2014 with unhealthy results, based on the LDR ratio in 2016 and 2017 with fairly healthy results. Based on the factors of corporate governance / GCG in 2014 the results of the assessment were not good.Based on the ROA ratio in 2014, 2015, 2016 and 2018 with unhealthy results and in 2017 with fairly healthy results. Based on the NIM ratio in 2014 with Unhealthy results and in 2015 with Unhealthy Results. And based on the CAR ratio of all banks in the healthy category (very healthy, healthy, quite healthy).

Liquidity injection, bank lending, and security holdings: The asymmetric effects in Vietnam

The study examines how banks rebalance their lending and security holdings in response to the monetary policy adjustments by the central bank's liquidity injection. It is concerned that banks may not use the additional liquidity to loan out to the economy, but they instead get more involved in security holdings. Using a sample of Vietnamese banks during 2007–2018, we find an asymmetric portfolio expansion strategy indicating that banks increase the purchases of securities far more rapidly than they treat their loan portfolio. Further analyzing the compositions of security holdings, we document that banks favorite government and financial bonds, as opposed to corporate bonds. This pattern implies that some capital flows seem not to reach the borrowers in the real sectors. Most prominently, we corroborate banks' asymmetric reactions according to the level of financial soundness. Concretely, less (compared to more) stable banks take more risks amid the monetary policy easing in the sense that their loan portfolio grows faster while their security holdings spread slower. All of our findings are robust across (i) changes in econometric techniques of static and dynamic panels, (ii) alternative indicators of monetary policy, (iii) different measures for bank soundness by the Z-score index and credit risk by non-performing loans, and (iv) multiple modified sets of control factors. Consequently, the securities preference over credit in the sound time may worry the regulatory authorities. This study feeds into the hot debate in Vietnam and other emerging countries as well, on the restriction of security trading and credit growth, and the scale of the central bank's asset purchases to avoid excessive liquidity.

Corruption and banking soundness: does natural resource dependency matter?

PurposeThe natural resources curse theory argues the higher dependency on natural resources leads to many socio-economic problems. The purpose of this study is to examine the relationship between corruption and banking soundness and also to compare the extent of this effect between the two groups of rich and poor in natural resources countries.Design/methodology/approachTo this aim, the authors apply a panel data set comprised of 98 countries from 2012 to 2015.FindingsThe results show that nations with a higher level of corruption have poorer banking soundness. The authors also find that by considering the resource curse theory and the effect of natural resource rents in the model, the adverse impact of corruption on banking soundness is more substantial in countries with a higher natural dependency level (rich in natural resources).Originality/valueThough studies have been conducted on corruption and banking soundness, this paper, by using resources curse theory, articulates that corruption is one of the most critical factors affecting banking soundness and has a destructive effect on the health of the banking system and the economy of almost all countries, especially in natural resource-based economies. This study will appeal to banks authorities, governments, policymakers, oversight financial institutions and those who have a vested interest in regulating financial crimes globally. They can prevent financial and banking crises by cooperating in the fight against corruption worldwide.

The effect of the efficiency of monetary policy educational tools on the financial soundness of banks A pilot study in the Iraq Stock Exchange (2007-2017)

The aim of the research is to identify the impact of the quantitative tools of monetary policy on the financial soundness of banks, and the research was based on a set of hypotheses, to determine the nature of the effect between independent and dependent variables, and for the purpose of testing research hypotheses, a number of financial ratios according to CAMEL indicators were used to analyze the historical data of banks, the research sample and the component From (7) banks for the period (2007-2017), the quantitative tools of monetary policy were used from the impact published in the Central Bank of Iraq, and a number of statistical methods were used, including time series testing, joint integration test and multiple regression test according to programs.EVIES10 has been reached through the research to a number of conclusions, the most important of which is that the CAMEL classification system is one of the effective supervisory methods for assessing the financial soundness of banks and determining the duration of the strength and durability of their financial positions and the extent of their ability to adapt to any variables related to their activities, as it ensures that the banks are moving in the direction. Correct or reverse, and the weakness of the monetary policy tools applied by the Central Bank of Iraq due to the limited Iraqi market for securities as it is still incomplete conditions as a secondary market that contributes to expanding the circulation of securities, which constitutes a burden on the use of quantitative tools of the Central Bank of Iraq, especially open market operations,As well as the weakness of the legal reserve ratio in the impact on the ability of commercial banks to grant credit, because commercial banks in Iraq enjoy high liquidity due to the high rate of inflation significantly. The research also presented a set of proposals, the most important of which is the activation of the monetary policy tools of the Central Bank of Iraq, which is currently being used to modernize, develop and increase the efficiency of the stock market in Iraq to keep pace with developments in global markets,nd developing the supervisory and supervisory role of the Central Bank of Iraq over Iraqi banks in terms of the extent of their commitment to regulations and laws and activating and activating the banking sector in a way that serves to build a banking infrastructure that keeps pace with the development of international banks. Delinquency and low capital adequacy ratio, thus hedging and beware of any problems that arise in the banking sector. Key words: monetary policy, quantitative tools of monetary policy, financial soundness, the CAMEL model, Iraq Stock Exchange Market.

Bank-Specific Variables and Banks’ Financial Soundness: Empirical Evidence from Nigeria

Abstract This study examines the explanatory power of capital adequacy, asset quality, management soundness, earnings quality, liquidity and sensitivity to market risk (CAMELS) framework as well as a number of other variables on the financial soundness (measured by regulatory capital adequacy ratios) of banks in Nigeria. The findings, using ordinary least squared (OLS) regression subsequent to the establishment of no panel effects among the sampled banks, reveal the significant explanatory potentials of these bank-specific variables though some give a reversal of their prior expectations. Apart from reawakening the investors’ and depositors’ interest, the findings further have policy implications on the regulation and operation of these financial institutions. The study breaks new grounds in the measurement of capital adequacy using gross revenue ratio and leverage ratio, asset quality using income statement impairment charges for loan losses, and in the inclusion of the sensitivity to market risk most especially in the Nigerian context.

ANALISIS PERBANDINGAN TINGKAT KESEHATAN BANK BUMN DAN BANK SWASTA DI INDONESIA BERDASARKAN METODE RGEC PERIODE 2015-2019

Abstrack-As an intermediary institution and support for the nation's economic activity, banks must pay attention to their health level. Information regarding the soundness of a bank is very much needed by various parties involved, both parties from within the bank itself and parties from outside the bank to evaluate the bank's performance in applying prudential principles, compliance with applicable regulations and risk management. This study aims to determine the comparison between state-owned and private banks, the performance of banks in Indonesia on NPL, LDR, GCG, ROA, ROE, and CAR. The population in this study were state-owned and private banks in Indonesia. The sampling technique was carried out at four state-owned banks and four private banks in Indonesia and quantitative data in the form of financial statements. The analysis technique used Normality Test, Paired t-test and Wilcoxon Signed Rank Test.The results of this study are that according to the Paired t-test NPL, ROA, ROE, and CAR there is no difference in the soundness of state-owned banks and private banks, but LDR experiences differences in the soundness of state-owned banks and private banks. According to the Wilcoxon Signed Rank Test, there is no difference in the soundness of state-owned banks and private banks.

A Statistical Analysis of the Effects of the Strengthening of Accounting and Auditing Standards on the Financial Soundness of Banks

Financial soundness of banks is vital not only for the firms but also countries in order to achieve sustainable economic development and the welfare of the society. There are many factors affecting financial soundness of banks both firm level and country level. In this study, it is tested whether strengthen auditing and accounting standards affects the soundness of banks or not for the 140 countries by using Kruskal-Wallis test. According to the Kruskal-Wallis test results, it can be argued that as auditing and accounting standards strengthens then financial soundness of banks rise. As a result, it can be concluded that the banking sector and the countries should give great importance to strengthen auditing and accounting standards in order to achieve better financial soundness of banks and sustainable economic development.

Analisis Faktor Risk Profile, Good Corporate Governance, Earnings, dan Capital terhadap Profitabilitas pada Bank Syariah Bukopin Periode 2011-2019

In 2019, Bank Syariah Bukopin obtained the lowest profitability value which is proxied by Return On Assets. Therefore, the bank needs to improve its health condition so that the bank can make a profit or profit as expected. This study aims to determine the effect of bank soundness on the level of profitability (ROA) of Bank Syariah Bukopin in 2011-2019. The research method used in this research is quantitative descriptive method with multiple linear regression analysis techniques. The population in this study is Bank Syariah Bukopin and the sample used in this study is Bank Syariah Bukopin in 2011-2019. The dependent variable in this study is profitability (ROA), while the independent variables in this study are the level of financing risk (NPF), the level of liquidity risk (FDR), the level of cost efficiency (BOPO), and the level of capital adequacy (CAR). The results showed that NPF, FDR, BOPO, and CAR had a significant simultaneous effect on profitability (ROA). As for partially, NPF has a negative and insignificant effect on ROA, BOPO has a significant negative effect on ROA, while CAR and FDR have no significant effect on ROA. The implication of this research is that banks need to maintain health conditions by preventing problematic financing, reducing operational costs, and using capital effectively and efficiently so that banks can obtain profitability as expected.

Banking Clustering Study Based On Fuzzy C-mean and Fuzzy Gustafson Kessel

The banking sector as one of the economic drivers plays an important role in society. Over time, bank operations did not only raise funds from the public but were more complex. The development of the banking industry can be seen from the number of banks in Indonesia that have spurred the level of competition. Of course, the bank must pay attention to its health. The use of bank soundness level parameters or RGEC combined with clusters is interesting to study. By using the cluster method, banks can be classified based on the parameters of their health level. This study aims to analyze the RGEC-based bank grouping classification generated by the Fuzzy C-Means and Fuzzy Gustafson Kessel clustering analysis using financial ratio data on 80 conventional banks in Indonesia. The software used in this study is Matlab r2015b. The results showed that the FCM clustering had a smaller standard deviation than FGK so that the first cluster in the FCM showed that the banks were in good condition compared to the other clusters even though the overall condition of banks in Indonesia was good when viewed from their financial performance.

Effect of Working Capital Management on The Financial Performance of Banks

Working capital is a measure indicating the level of efficiency and financial soundness of banks and their ability to meet obligations and liabilities in the short-run. The placement of working capital is one of the basic tasks that fall upon modern financial management because of its possible impact on the banking performance. This research aims to study and analyze the effect of working capital management on the financial performance in banks. The study uses secondary data obtained from the published annual financial reports of 15 banks banks listed in the Iraq Stock Exchange during 2005-2018. The collected panel data is analysed through the use of EVIEWS 10. The study found that there is a clear deficiency of some banking departments about defining a management mechanism and allocating working capital and harnessing its components as effective tools in improving the banking financial performance. Moreover, cash conversion cycle is among the factors that have significant impact on the banking performance. Accordingly, some conclusions were presented, including the interest of banking institutions' management in allocating working capital well and with the aim of promoting the reality of banking procedures and taking account the process of evaluating financial performance using efficient methods, including those related to the analysis of working capital components

The Validity of Altman’s Models in Predicting Iraqi Private-Banks Soundness

Nowadays, banks play a significant role in the economy. Thus, its fail extends beyond stakeholders, companies and organization. But may reach to threaten the entire economy. Such an institution better to depend on an early warning system to prevent the costly fail of it. Financial distress prediction (FDP) refers to a method of utilizing statistical models to predict business failure or difficulties that may face banks. A famous earlier model suggested by Altman in which use by the current study to assess the soundness of Iraqi private banks and to find out if such a model could be appropriate to predict financial failure. The model applied to two groups of Iraqi private banks. The first group involves already failure banks; in contrast, the second group comprises Non-failure banks. The study finds that the Altman model unable to predict financial distress in Iraqi private bank with worthwhile accuracy. Therefore, it is inapplicable as applied in other business environments.