Bank-specific Characteristics Research Articles

The Moderating Effect of Macroprudential Policies on the Relationship Between the Effectiveness of the Board of Directors in Shaping the Bank's Risk-Taking Behavior

Macroeconomic instability in 2020 caused by COVID-19 can affect the stability of the country's financial system and trigger risks to banking performance. The implementation of macroprudential policies and the effectiveness of the board of directors as policy implementers can be one of the solutions to this problem. The purpose of this study is to see how the influence of macroprudential policies and the effectiveness of the board of directors in shaping bank risk-taking behavior. The method used is panel data regression method and moderation regression with a sample of 43 banks listed on the Indonesia Stock Exchange including banks that consistently published their financial statements for the last five years. The results showed that partially only the effectiveness of the board of directors and company size affected bank risk-taking behavior, while macroprudential policies, macroprudential policies that moderate the effectiveness of the board of directors, and inflation were considered to not affect bank risk-taking behavior, this was due to differences in bank-specific characteristics, the effectiveness of corporate governance, policy implementation in the form of policy easing and tightening, and the interaction between macroprudential policies and monetary policy. However, simultaneously the independent variables and control variables have a significant influence on bank risk-taking behavior.

Impact of Islamicity on the productivity of conventional and Islamic banks in selected southeast Asian countries

This study provides a new understanding of how bank-specific characteristics, the macroeconomic environment, and Islamicity affect the productivity of conventional banks (CBs) and Islamic banks (IBs) in selected Southeast Asian countries. The data of 153 banks, collected between 2015 and 2020, were used, and the influence of the selected factors was investigated by using panel data approaches, as well as the data envelopment analysis-based Malmquist productivity index (DEA-MPI). In the first-stage analysis, bank productivity was measured by using total factor productivity changes (TFPC), and in the second-stage analysis, panel regression analysis was performed, specifically, multiple panel regression analysis, which employed pooled ordinary least squares, a fixed-effects model, and a random-effects model. Parametric and nonparametric (Mann–Whitney and Kruskall–Wallis) tests found that the IBs were more progressive than the CBs. The findings indicated that unlike the IBs, change in the productivity of the CBs was adversely affected by economic Islamicity, as well as legal and governance Islamicity, which indicated that macroeconomic and legal structures that leaned toward Islamic values adversely affected the CBs. Meanwhile, the IBs were likely to be structured in line with such values and thus can mitigate the adverse impact of various factors. Both groups were negatively affected by human and political rights Islamicity, which indicated the use of a setup that could not benefit from Islamic values. This finding lends credence to the arguments in the literature that IBs mirror CBs in practice to remain competitive in their pricing based on market principles. The IBs were found to benefit from international relations Islamicity, which bodes well for the competitiveness of new players against the ancient setup of CBs in the globalized world.

Determinant of Probability of Indian Listed Commercial Bank

This study investigates the determinants of profitability among commercial banks in India over the period from 1999 to 2022, utilizing unbalanced panel data comprising 108 banks. By examining both internal bank-specific characteristics and external macroeconomic factors, we assess how these variables impact profitability across different types of banks. Our findings suggest that liquidity conditions, as measured by the loan-to-asset ratio, do not significantly affect profitability. However, credit risk, represented by the ratio of loan loss provisions to total loans, demonstrates a positive relationship with profitability for foreign and private banks. Diversification has conflicting effects on profitability, with SBI & Associates banks and public banks benefiting from it, while new private banks experience negative impacts. The influence of overhead costs on profitability varies across bank types, positively impacting return on equity for all banks and foreign banks, but negatively affecting return on equity for public banks. Conversely, it positively impacts return on assets for all banks but negatively impacts return on assets for private banks. Capital strength exhibits a negative association with profitability across all banks and a positive association for public banks, with inconclusive results for private banks. Bank size does not show a significant relationship with profitability across all bank types. Regarding macroeconomic factors, while indicators like money supply growth and inflation do not significantly impact return on equity, they positively influence return on assets, albeit with variations across ownership types. In conclusion, this study highlights the complexity of factors influencing bank profitability in India and underscores the importance of tailored management strategies to navigate these complexities effectively.

State-owned banks and international shock transmission

This study re-examines the relationship between commercial bank ownership and lending growth from 1996–2019. The results show that before the 2008 financial crisis, both categories of foreign banks expanded lending, predominantly in developing countries. A shift occurred in the lending behavior of foreign banks post-2008. Bank-specific characteristics became more influential in determining credit growth. During host country banking crises, foreign state-controlled banks demonstrated higher loan growth rates than private-owned banks and reduced credit growth abroad during banking crises in home countries. Lastly, during the 2008 crisis, domestic state-controlled banks stabilized lending activity, while both types of foreign banks reduced lending.

The collapse of Silicon Valley Bank and Credit Suisse and their impact on other U.S. Banks

ABSTRACT This paper examines how US banking industry responded to the collapse of Silicon Valley Bank and Credit Suisse. The analysis of abnormal returns surrounding the announcement of the collapse of Silicon Valley Bank and Credit Suisse reveals a negative and statistically significant impact on the largest listed US banks. Banks’ market value loss is explained by information asymmetries and uncertainty returns, systemic contagion, and panic. These reactions are reinforced or mitigated by bank-specific characteristics such as size, liquidity, profitability, risk aversion, operational efficiency, institutional ownership, internationalization, dependence on uninsured deposits and ratio of off-balance sheet items.

Shadow banking and non-performing loans: international evidence

PurposeThis paper aims to document the impact of shadow banking on non-performing loans (NPLs) of publicly listed banks in an international setting.Design/methodology/approachThis paper uses the data from 27 countries and various estimation strategies to test the arguments presented in this paper. The sample covers the period between 2002 and 2020.FindingsThe empirical results suggest that banks headquartered in countries with high shadow banking activity have fewer NPLs than otherwise similar banks headquartered in countries with low shadow banking activity. The findings remain qualitatively the same in different sub-samples and after replacing the main variables with their alternate proxies. The paper also shows that this relationship is sensitive to bank-specific characteristics. Moreover, the paper also indicates that the stringency of banking regulations weakens the relationship between shadow banking and NPLs.Research limitations/implicationsThe study’s data limitations prevent a detailed year-by-year analysis of NPLs and shadow banking, restricting insights into their evolving dynamics. In addition, the focus on country-level shadow banking data limits the exploration of how multinational banks’ activities in various jurisdictions impact individual banks’ NPLs.Originality/valueThe paper not only documents the effect of shadow banking on NPLs but also shows that the relationship between shadow banking and NPLs weakens as banking regulations become more stringent.

The Effects of Bank Specific Characteristics and Corporate Governance Mechanisms on Disclosure: An Empirical Investigation in the Banking Sector of Ethiopia

The objective of the study was to investigate the effect of bank-specific and corporate governance mechanisms on the financial and social disclosure level of Ethiopian commercial banks. To address this objective, six years of secondary data were collected from seventeen commercial banks. Financial and social disclosure levels, measured using an unweighted disclosure index, were used as dependent variables, while bank-specific characteristics (such as profitability, age, size, leverage, and liquidity) and corporate governance mechanisms (such as board size, board diversity, board independence, audit committee size, and audit committee independence) were used as independent variables. Generalized Least Squares (GLS) estimation was used to examine the association between dependent and independent variables and to test the hypotheses. The results evidenced by GLS regression revealed that profitability, bank size, and board size have a significantly positive effect on financial disclosure. Conversely, leverage, liquidity, and audit committee independence significantly negatively affect financial disclosure. However, age, board diversity, and audit committee size have no significant effect on the financial disclosure level of Ethiopian commercial banks. Moreover, the results documented from FGLS estimation indicate that profitability has a positive significant effect on social disclosure, whereas liquidity 2023and board independence have a significantly negative effect on social disclosure. However, age, bank size, leverage, board size, board diversity, and audit committee independence do not significantly affect the social disclosure level of Ethiopian commercial banks.

Impact of Bank Characteristics and Macroeconomic Factors on Banks’ Profitability: A Study on Emerging Economy

This study explores the impact of bank-specific characteristics and macroeconomic factors influence banks' profitability in an emerging economy. In order to evaluate the internal features of banks, the study takes into account a number of firm-level variables, such as the Liquidity Ratio, Loan-to-Deposit Ratio, Capital Adequacy Ratio, Investment Income, Non-Performing Loans, and Total Assets. The real interest rate, the GDP, and inflation as measured by the Consumer Price Index (CPI) are regarded as external macroeconomic variables. Return on Assets (ROA) and Interest Income are the two main metrics used to assess profitability. The research makes use of a panel data collection that includes 80 observations from 10 banks between 2014 and 2021. A multiple regression analysis is conducted to assess the impact of macroeconomic variables and bank-specific attributes on profitability. The findings demonstrate that capital adequacy ratio and investment income have large positive effects on profitability (ROA), whereas real interest rates, GDP, and non-performing loans have considerable negative effects. Liquidity, Loan-to-Deposit Ratio, Total Assets, and Inflation do not statistically significantly affect ROA.

Examining the moderating effect of bank size on the financial risk and performance linkage of Islamic commercial banks

Financial performance is very important for Islamic banks to ensure the sustainability of their business in providing banking products and services according to Sharia principles or Islamic law. This research examines the impact of financial risk on the financial performance of Indonesian Islamic commercial banks (ICBs), with bank size as a moderating variable. The research was conducted on all Indonesian ICBs from 2017–2021. Fixed effects models are employed to account for potential heterogeneity across banks and control for time-invariant unobserved factors. These models allow for estimating the within-bank variation over time, capturing constant bank-specific characteristics over the study period. The results of this research state that financing and operational risks significantly negatively impact financial performance. In contrast, liquidity risk does not significantly negatively impact financial performance. Furthermore, from testing the moderation hypothesis, the results of this study state that total financing reduces the significant negative effect of financing risk and operational risk on ICB Indonesia’s financial performance. However, total financing does not reduce the significant negative effect of liquidity risk on the financial performance of Indonesian ICBs.

Earnings Management and Bank Liquidity Creation in an Emerging Market

This paper empirically examines the impact of bank earnings opacity on liquidity creation. Using a sample of commercial banks in Vietnam from 2007 to 2019, we find that more opaque banks tend to reduce liquidity creation growth. We further offer sharp evidence that the impact of earnings management on bank liquidity creation depends on bank-specific characteristics. More precisely, the negative impact of bank earnings management on banks’ core function is stronger for banks that are more poorly capitalised, less liquid, smaller and less profitable. With these findings, our work display implications on the supply-side effect (i.e., the limited access to funding of financially weak banks).

Stock market effects of silicon valley bank and credit suisse failure: evidence for a sample of european listed banks

This paper examines the short-term market reaction of Silicon Valley Bank and Credit Suisse failure in the European banking industry. Using an event study, I show that stocks react significantly negatively to those two bank failure events. The general drop in value seen in the sector is explained by systemic contagion, panic and information asymmetries and uncertainty returns. These reactions are reinforced or mitigated by bank-specific characteristics such as liquidity, interest margin, risk aversion, operational efficiency, and institutional ownership.

The Impact of Industry Concentration on Stability: The Case of Indonesian Islamic-Commercial Banks

This study aims at investigating the impact of the banking industry’s concentration on the stability of Islamic commercial banks in Indonesia. This study used a single country setting of 14 Islamic-commercial banks in Indonesia from 2011 to 2020. The data utilized in this study comprised all Islamic-commercial banks' assets in Indonesia, excluding commercial banks with Islamic business units. The influence of concentration level on the stability of Islamic-commercial banks was investigated using a panel data model. According to Hausman's test, the fixed-effect model is more suitable than the random-effect model. The findings indicate that the “concentration-stability” hypothesis was supported-robust using two concentration level measurements: CR4 and HHI. It is implied that banks tended to be more stable at the higher competition level. From the bank’s specific characteristics, only the cost-to-income ratio significantly influenced the bank's stability, as expected. Other bank-specific characteristics, such as bank size, credit risk, and income diversity, had no substantial influence on observed bank stability. A robustness check was performed by estimating new models that included multiple control variables that did not change the effect of concentration level on the bank’s stability. This study adds to the literature by demonstrating the “concentration-stability” hypothesis in the Indonesian Islamic-commercial banking industry. Moreover, this study’s results confirm the previous study’s findings using different methods and measures of industry concentration. In addition, this study is relevant in the context of the merger action of three large Islamic commercial banks.

Relationship Between Bank-Specific Characteristics and Web-Based Disclosures of the Commercial Banks in India

This article examines the extent of web utilization as a tool for the disclosure of corporate information on the website and exhibits the association between bank-specific attributes such as size, age, profitability, market discipline, listing status, leverage, foreign ownership, and type of sector in relation to the web disclosures of 87 public, private, and foreign sector Indian commercial banks. To achieve the objective, a checklist index of 143 items of information was developed. To examine the hypotheses of the study, a panel regression model was estimated on the data of 87 Indian commercial banks. Panel regression results indicate that size, market discipline (CAR), profitability, listing status, type of ownership, and type of sector have a significant relationship with the level of web disclosure, and banks are more likely to use the websites to disclose information. On the contrary, age, leverage, and market discipline (NPA) have insignificant relationship with the web-based disclosure level, and Indian banks have not shown any relationship with the disclosure score. The study will help the managers to meet the actual and potential informational needs of the investors; for the investor, it will help to assess investment decisions in a better way.

Credit Risk Determinants: Specific and Macroeconomic Factors of Islamic Banks

The development of Islamic banking credit risk shows a downward trend. However, the existence of Indonesian Islamic banking in the world is not yet among the best ranked, even though it has the largest Muslim population. This study examines the factors that influence credit risk in Islamic banks in Indonesia by using the bank's specific characteristics and macroeconomic factors. This study uses a multiple linear regression method with monthly data on Islamic banking in Indonesia for the period 2020-2022. The dependent variable for credit risk uses Non-performing financing (NPF). Independent variables from bank-specific factors are used Capital Adequacy Ratio (CAR), Financing to Deposit Ratio (FDR), and Operating Expenses to Operating Income (BOPO). While the independent variables from macroeconomic factors use inflation and interest rates. The results showed that the CAR, FDR, and inflation variables affected the credit risk of Islamic banks. FDR has a positive effect, while CAR and inflation have a negative effect. BOPO and interest rates do not affect credit risk.

Factors Affecting Commercial Bank’s Net Interest Margin: Study Case in Indonesia, Thailand, and Philippines.

The aim of this research is to investigate determinants factors of Commercial Banks’s net interest margin in Indonesia, Thailand, and Philippines. This study uses quarterly panel data from 2010 until 2020. The OLS Equation Model was used to analyze the macroeconomic factors and banks' specific factors towards Net Interest Margin (NIM). The result showed that inflation rate as the only one factor from Macroeconomic factors and Overheard cost is one from Bank Specific factors which significantly affect Net Interest Margin in all of these countries. Other than that, valuable findings from this research show that determinants factors which have significant impact from bank specific characteristics in each country are different. In Indonesia, Higher Size of operations, Risk Aversion and Income Diversification are determinants factor that can lower net interest margin. Bank in Indonesia have to manage their credit risk well, because this factor can potentially lead to higher NIM. Commercial Banks in Thailand and Philippines show opposite result. Larger size of operations and higher risk aversion will lead to higher NIM. Market concentration plays a critical role to minimize NIM in Philippines. So, regulators should maintain this condition. Because higher competition potentially led to higher NIM in Philippines’s bank.DOI: 10.26905/jkdpv27i2.9598

Investment Bank, Financial Performance, Economic growth and Development: An Empirical Analysis of Investment Banking Activities and Financial Market in an emerging Economy: A case study of Nigeria

The investment bank's performance was researched and critically analysed, and how such performance might contribute to economic growth notably in Nigeria. This study is unique in the Nigerian financial market since it empirically studied connected characteristics that potentially impact investment bank performance in Nigeria. This study spanned the years 1996 through 2022. The period was marked by a credit boom, a financial recession, a rebound, and strong economic expansion. Because of the nature of the study topics, a quantitative approach was taken. The study discovered that bank-specific characteristics, industry-specific factors, macroeconomic drivers, and institutional factors are relevant in evaluating the performance of Nigerian investment banks. That is, a critical examination of the performance of Nigerian investment banks is centred on bank-specific characteristics. This suggests that the capacity of investment banks to fulfil their essential functions is determined by internal factors such as capital, credit risk, operating expenditures, and size. Additionally, the industry strength demonstrated that the financial market's depth had an influence on investment banks. The significance of competitiveness was underlined. Macroeconomic factors such as GDP growth, interest rates, inflation rates, and oil prices shown that a strong macroeconomic environment is required for vibrant investment banks. Lastly, institutional variables such as a developed insurance industry, political stability, the rule of law, and effective government policies can all have an impact on the success of Nigerian investment banks. The research recommended that, in order to significantly improve the performance of investment banks in Nigeria, the following strategies be pursued aggressively: cost reduction strategy, cultural transformation, adopting a customer-centric approach to business, technological development, financial depth development, and development of a sustainable investment bank framework. This study believes that if the recommendations are adopted, investment banks' profits would improve, allowing them to execute their core functions and contribute to the growth of the economy, particularly in a rising economy like Nigeria. &nbsp

Effect of the Konjunktutforschungstelle Index of Globalization, Bank Specific Characteristic and Macro Economics on the Performance of Banking Companies in Indonesia

This study aims to analyze the effect of globalization, bank specific characteristics and macroeconomics on the performance of banking companies in Indonesia which is assessed based on ROE (return on equity). The variables used in the globalization dimension are the Kof Economic Globalization Index, the Kof Social Globalization Index, and the Kof Political Globalization Index. The variables used in the bank specific characteristic dimensions are bank size and EQASS (equity to asset ratio). While the variables used in the macroeconomic dimension are the inflation rate, GDP (Gross Domestic Product) per capita growth rate, and FDI (Foreign Direct Investment) Inflows part of GDP. This study uses secondary data taken from annual reports published by banking companies from 2010 to 2019. The panel data processing model chosen in this study is the REM (Random Effect Model) model. The results of the analysis of the REM model show that the Kof Economic Globalization Index, the Kof Political Globalization Index, bank size, inflation rate, and GDP (Gross Domestic Product) per capita growth rate have a significant positive effect on ROE (return on equity). Meanwhile, the Kof Social Globalization Index and FDI (Foreign Direct Investment) Inflows part of GDP have a significant negative effect on ROE (return on equity). The variable EQASS (equity to assets ratio) has no significant negative effect on ROE (return on equity). Keywords: Kof Economic Globalization Index, Kof Social Globalization Index, Kof Political Globalization Index, bank size, EQASS (equity to asset ratio), inflation rate, GDP per capita growth rate, FDI Inflows part of GDP

Factors Contributing to Non-performing Financing: Evidence from Islamic Banks in Malaysia before Pandemic

This study is going to ascertain the contributing factor of non-performing financing in Islamic banks in Malaysia. Purpose – This study aims to investigate the specific bank characteristics as well as macroeconomic variables. Methodology/approach –Twelve local Islamic banks would be the focus for this study starting from period 2009 until 2018 which are before pandemic. The annual report has been used as the primary source for the financial data. While for the macroeconomics data, DataStream database has been used. Panel data approach was used to investigate the data and all the determining factor from both factors were regressed against non-performing financing. Findings – This study found that just two bank-specific characteristics, bank size and capitalization, showed a significant negative link with non-performing financing. While the other variables from macroeconomic factors does not give any important impact on non-performing financing for the Islamic banks in Malaysia.

Does bank competition affect bank risk-taking differently?

This paper examines the presence of two competing views—“competition-fragility” and “competition-stability”—in analyzing the impact of competition on bank stability. The approach is to first construct measures of bank competition from a unique dataset of balance sheet and income statements for 542 banks operating in the Philippines from March 2010 to December 2020. The paper then estimates the impact of these competition measures on solvency risk or the risk of being unable to absorb losses with the available capital across universal/commercial banks (U/KBs), thrift banks (TBs) and rural/cooperative banks (R/CBs) industries. Using panel quantile regression, the results reveal that, at the industry level, bank competition reduces solvency risk and that it enhances bank stability. Looking at the risk distribution, the study shows the presence of the competition-fragility and competition-stability hypotheses holding simultaneously for U/KBs suggesting that the effect of competition depends crucially on the underlying individual bank risk. Importantly, the results highlight that the relationship between competition and bank risk is sensitive to other bank-specific characteristics and macro-financial factors related to extent of diversification strategy, cost-to-income ratio, deposit growth, capitalization, changes in the physical banking networks, and growth of real Gross Domestic Product.

Revisiting the bank lending channel in Turkey under the unconventional monetary policy framework

This paper provides empirical evidence regarding the bank lending channel under Turkey's unconventional monetary policy framework. Towards this end, the impact of changes in monetary policy stance on bank credit growth is investigated using a dynamic panel data modelling approach between 2011 and 2019. The empirical results reveal cross-sectional heterogeneity in the loan supply of Turkish banks following a change in monetary policy, which implies an operative bank lending channel in the post-2010 period of the policy mix. Small, liquidity-constrained, and inadequately capitalized banks tend to experience sharper contractions in their lending during monetary policy tightening episodes. Besides, in terms of bank-specific characteristics, the findings demonstrate that larger bank size and capital is associated with a higher loan supply. On the contrary, liquidity is found to harm bank lending.