Bank Stability Research Articles

Is the Revenue Diversification Strategy in Sharia Banks Effective during Covid-19 Pandemic?

Purpose: This research aims to examine the role of revenue diversification in ensuring financial performance remains stable and various risks in Islamic banks can be mitigated. Methodology/approach: This type of research is quantitative and uses purposive sampling on the Islamic banking statistical report published by the Financial Services Authority (OJK) on March 2021 to June 2023. The data will be tested using multiple linear regression analysis using SPSS version 21. Findings: The results of the study indicate that the diversification strategy implemented by Sharia Banks in Indonesia can improve financial performance as proxied by ROA and ROE, and can reduce financing risk as proxied by NPF. Practical implications: The results of this study are expected to provide recommendations for Islamic banking in determining various non-operational activity policies to maximize income in various conditions, including during the COVID-19 pandemic. Originality/value: This study tries to see the effect of income diversification strategy by increasing non-operational income that can be done as an effort to maintain the financial stability of Islamic banks in any condition. In addition, the researcher added control variables in the form of total assets, capital, FDR, and the Sharia Supervisory Board (DPS) to strengthen the research results.

Financial inclusion and stability in Ethiopia using bank-level data: A two-step system GMM estimation

Background This paper examines the impact of financial inclusion on bank stability within Ethiopian context, using panel data from 17 commercial banks over the period 2015-2023. Given the scarcity of research focused on the relationship between financial inclusion and bank stability in Ethiopia, this paper seeks to address a crucial gap by analyzing both conventional and digital aspects of financial inclusion in relation with bank stability. Methods A two-stage principal component analysis (PCA) was conducted to construct a composite financial inclusion index, integrating 10 conventional and 5 digital indicators. The study applied a two-step robust system generalized method of moments (GMM) to examine the effects of financial inclusion on bank stability, complemented by Granger causality testing to examine the directionality of this relationship. Results The result reveals a significant positive effect of financial inclusion on bank stability and Granger causality tests confirms a bi-directional relationship between financial inclusion and stability, indicating that improvements in financial inclusion foster greater stability and vice versa. Our results also highlight that while bank efficiency and GDP growth rate positively effect stability, total assets and income diversification exhibit detrimental effects. Conclusions It is essential to capitalize policy synergies to promote bank stability and to enhance financial inclusion through conventional and digital channels, while carefully managing the implications of risks associated with income diversification and asset distribution. Ensuring inclusive financial system is vital for maintaining bank stability, thus positioning it as a key priority for financial institutions.

MICROPRUDENTIAL ASPECT BEYOND RULE OF THUMB IN RURAL BANK INDUSTRY IN INDONESIA

Objective: This research aims to examine the microprudential aspects beyond traditional rule of thumb measures in the regulation of Rural Banks in Indonesia, particularly focusing on the implications of recent regulatory changes that have prompted Rural Bank mergers. Theoretical Framework: This research utilizes a framework that incorporates financial ratios as critical indicators of bank performance and health. It considers the influence of regulatory frameworks—especially those outlined in POJK regulations—on the operational effectiveness and stability of Rural Banks. Related to the forced corporate action, reason that administrative reform may not have increased merger activity as expected is that larger, combined activities are likely to be more readily able to absorb the significant costs of complying with administrative reform than smaller Rural Bank. Method: This research methodology used is a qualitative descriptive method. In conducting this study, researchers used primary data and secondary data. Primary data obtained from the results practitioners' perspective of interviews (in-depth interviews) with experts and practitioners, who have an understanding of the issues discussed in Rural Bank Industry so that we can presumably determine the real current situation using a Qualitative Descriptive method with a Phenomenology study approach. While secondary data was complemented by data collected from literature studies, from the Financial Service Authority (OJK) official website, Several Rural Bank Performance Report and Financial Report during 2019 - 2023, scientific articles, books, information from the mass media and other relevant sources of information. Result and Discussion: This study highlights that reliance solely on the rule of thumb can be misleading in assessing bank health. It shows that a detailed analysis of various financial ratios—such as capital adequacy, asset quality, earnings, and liquidity—provides a more comprehensive understanding of a bank's performance and risks associated with mergers. The banking industry those had time to familiarize itself with the subject and to put legislation into concrete action. Other findings indicate that the enforcement of regulations aimed at increasing capital adequacy and reducing systemic risk has led to forced mergers among Rural Banks. Research Implication: The study underscores the importance of integrating microprudential regulations into the operational frameworks of Rural Banks. It suggests that regulators should prioritize comprehensive assessments based on financial ratios rather than simplistic heuristic methods, especially in the context of forced mergers driven by regulatory pressures. Effective and appropriate use of the merger strategies forced by regulator (OJK) have not facilitated Rural Banks’ efforts exactly to earn above-average returns. However, even when pursued for value-creating reason, merger strategies are not problem-free. Reason for the use of merger strategies and potential problem with such strategies are suboptimum goals congruence because of management control problem – include lack of direction, motivational problem, and personal limitation (Merchant et al, 2017). Recommendation: The research recommends that Rural Banks systematically evaluate their financial health using detailed financial ratios and adapt to the new regulatory landscape that encourages mergers. It also urges regulators to refine their guidelines to include these metrics as essential tools for ongoing performance assessment. Enhanced training for bank management on interpreting and applying these financial ratios can improve overall operational effectiveness, particularly in the context of mergers. Merger is not just about consolidating financial aspects, but also harmonizing the combination of tangible (Numbers on Balance Sheet) and intangible assets (Human capital aspect).

PROVISION OF BANKING SERVICES IN THE CONTEXT OF THE SUSTAINABILITY OF THE BANKING SYSTEM: CURRENT TRENDS AND DEVELOPMENT DIRECTIONS

The article examines banking services in the context of the stability of the banking system: current trends and directions of development. The current stage of development of the global banking system operates under conditions of intensified competition and crisis phenomena in financial markets. One of the main factors in the successful development of the domestic banking system is the policy of constant innovations.Currently, innovation is a key factor in the stability, competitiveness and sustainable economic growth of domestic banks. The sustainable development of the national economy is accompanied by an increase in the volume of financial transactions and an increase in the importance of the domestic banking sector. The banking system, being one of the most important links of the market economy, affects the life of society in many ways. It not only provides a mechanism for interregional redistribution of monetary capital, but is also a key element of the settlement and payment mechanisms of the country's economic system. This fact determines the importance of the banking sector in the socio-economic development of the state.The current realities of the banking business contribute to the identification of the main catalysts of domestic banking innovation activity: globalization of world financial markets and markets of banking services; growing competition from the banking and non-banking sectors; the world financial crisis. The above-mentioned factors significantly affect the qualitative and quantitative composition of banking institutions and their services and lead to key changes in consumer behavior, thus leaving banks with the only opportunity to preserve and increase their competitive advantages through the introduction of innovations, the direction of which determines the strategy for the development of the banking sector on medium-term perspective. Based on the results of the research, it was established that the problems accumulated in the national banking system can be solved by applying the experience of Great Britain, and the main postulates should be adapted to the national banking system, which will contribute to the development of the domestic market of banking services and increase the stability of the national banking system.

Loan growth drivers in state-owned banks: A fixed effects model approach

Loan growth is a critical driver for economic development, and comprehending the determinants affecting lending in state-owned banks is vital for enhancing financial sector stability and performance. This paper examines the factors that affect loan growth in state-owned banks in Bangladesh. We collected data over a 11-year period from 2012 to 2022. We applied ordinary least square method primarily followed by fixed effect estimation. To check the validity of the regression models of the study, we have considered several diagnostic tests. Our findings indicate that loan growth in state-owned banks is influenced by several industry-dependent variables i.e. size, liquidity, efficiency, non-performing loans, etc. The influence of bank size, income, liquidity, non-performing loan ratio, and cost-to-income ratio is the main emphasis of this study's investigation into the factors influencing bank lending. According to the statistics, there is a significant positive correlation between size and lending. Bank liquidity and lending show a strong negative correlation. The study also found higher lending is associated with higher non-performing loans significantly. The efficiency ratio shows a substantial negative impact on lending. To improve bank performance and stability, policymakers and bank management may benefit greatly from these results. Policymakers need to integrate various macroeconomic and qualitative elements into regulatory frameworks to bolster financial stability while facilitating sustainable loan expansion. Bank management can enhance efficiency by decreasing the cost-to-income ratio and strengthening credit risk management, while utilizing bank size for strategic expansions to increase lending capacity.

Pemberdayaan Ekonomi Perempuan Melalui Program Bank BTPN Syariah: Studi Literatur

The aim of this research is to find out whether financial inclusion has an effect on the stability of sharia banking in Indonesia using the Generalized Least Square (GLS) method. To measure the financial stability of Islamic banking, the inclusion variable contains MSMEs and Deposits, while the stability variable used is NPF. The research method used in this research is quantitative descriptive with the help of the Generalized Least Square (GLS) method which corrects problems in the classical assumption test, which is tested based on Eviews 12 with panel time series data. The research results show that the independent variable MSMEs has a significant effect on NPF. The independent variable Deposits has a significant effect on NPF. Reliability UI results using the F test for the MSME and Deposit variables together have an effect on NPF.

Retail CBDC: Implications for Banking and Financial Stability

This article reviews the literature examining how the introduction of a retail central bank digital currency (CBDC) would affect a modern economy, focusing on the implications for the banking sector and for financial stability. A CBDC can improve welfare by reducing financial frictions, countering market power in deposit markets, encouraging financial inclusion, and enhancing the payment system. However, a CBDC also entails noteworthy risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential adverse effects on financial stability. The recycling of the new CBDC liability through asset purchases or lending by the central bank plays an important role in determining the economic consequences of the introduction of a CBDC, raising fundamental questions about the footprint of central banks in the financial system. Ultimately, the effects of a CBDC depend critically on its design features, particularly remuneration.

The non-linear relationship between ESG performance and bank stability in the digital era: new evidence from a regime-switching approach

This study analyzes the effect of environmental, social, and governance (ESG) performance on banking stability in the digital era for a selected group of European banking institutions. Unlike many research, this paper incorporates the digital environment in which the European banking system operates into its investigation to capture the relationship between ESG scores, digitization, and bank stability from 2005 to 2022. This study uses a regime-switching model to investigate the non-linear hypothesis of the relationship, an aspect that has received insufficient attention in previous research. The empirical results confirm the non-linearity between ESG performance and banking stability in the digital era, identifying three ESG performance regimes. Moreover, higher ESG scores are associated with a lower risk of bank failure, aligning with stakeholder theory. Finally, European banks with weak ESG scores fail to avoid the fragility caused by investments in technological infrastructure. Overall, our results suggest that critics and proponents of banks’ commitment to social responsibility are, to some extent, right. Indeed, low or moderate ESG performance (Regimes 1 and 2) aligns with the classical perspective, while high ESG engagement (Regime 3) is consistent with the stakeholder view. Consequently, European banks need to adopt a digital strategy based on improving sustainability to leverage the positive impact of digitization and ESG performance on bank stability. On the policymakers’ side, they need to strengthen the legal infrastructure to support digitization and engagement in social responsibility activities.

Spatial gradients in bank stability response in macrotidal environments: Inferences from the Severn estuary (UK)

AbstractIn this study, we present a synthetic model summarising the main sedimentary and morphologic factors that drive spatial–temporal variations in bank stability through an exemplar macrotidal estuary. In contrast to previous studies that tend to only consider localised variations in the stability of small‐scale banks, here the focus is on understanding the bank stability patterns at the scale of the whole Severn Estuary (UK). The results show that during falling tides, the bank sediments persist in a near‐saturated state giving elevated bank pore pressures that coincide in time with declines in the hydrostatic confining pressure, leading to destabilisation of the bank. In contrast, bank stabilisation predominantly occurs during rising tides when the hydrostatic confining pressure is able to dominate over the destabilisation processes. Cohesive macrotidal estuaries similar to the Severn Estuary, tend to present a generalised decrease in the instability moving from the outer estuary where the tidal oscillations are more significant, to the inner part of the system where such oscillations are reduced and coupled with less high banks.

Liquidity creation and banking stability: an approach using the Bayes method

Liquidity creation and banking stability: an approach using the Bayes method

How Banks are Impacted by and Mediate the Economic Consequences of Natural Disasters and Climate Shocks: A Review

AbstractNatural hazard shocks (such as natural disasters, extreme weather events, and climate shocks) have significant negative consequences for real economic activity. The banking sector can mitigate (or exacerbate) some of these consequences. This paper reviews the recent empirical literature on how banks are affected by such shocks, and how banks mediate the economic consequences to households and the real economy. After conceptualizing the theoretical transmission channels between the real economy and the banking sector, the review proceeds in two steps. First, it synthesises the existing literature on the direct effects of natural hazard shocks on bank stability, bank profitability, and credit supply. Then, the critical role of banking in economic recovery is analysed, including research on spillovers into unaffected regions through the banking system. Negative direct effects of natural hazard shocks on banks can be significant but are often transitory. Banking systems in less developed countries appear more vulnerable and are less able to maintain credit supply under adverse conditions. Banks that are better capitalised and that have incentives to support affected economies contribute to economic resilience. The review identifies several avenues for future research and highlights specific features and trade-offs relevant to policymakers interested in enabling the banking system to contribute to sustained economic development in the face of worsening physical climate risks.

The Nexus Between Financial Stability and Economic Growth in Southeast Asia

AbstractFinancial stability is an important part of economic growth. The main objective of this study is to analyse how financial stability (using Bank Z-Score) affects economic growth. The data used is country-level data from five selected Southeast Asian countries (Indonesia, Cambodia, Malaysia, Philippines, and Thailand) for the period 2011 – 2021 using the ARDL model approach. The results of this study found strong evidence that financial stability (banking stability) has a positive effect on economic growth for countries in the Southeast Asian region. This study also reveals that it is not only important financial stability variables to achieve economic growth, but investment and trade openness must also be increased if the country is to achieve its expected economic growth. A positive correlation between investment and trade openness suggests a potential for these factors to contribute to economic growth synergistically. Keywords:Financial Stability, Economic Growth, Bank Z-Score, ARDL

Islamic bank stability and efficiency: A cross-country analysis

Purpose ― The study investigates the impact of the efficiency of Islamic banks on banking stability. Method ― A panel data analysis using the Least Square Dummy Variable Corrected (LSDVC) method is employed to examine the impact of efficiency on banking stability in Islamic banks. The study has a sample of 54 Islamic banks across eight countries from 2013 to 2021.Findings ― The findings reveal that the efficiency of Islamic banks has a positive and significant effect on banking stability. In addition, financial turmoil negatively and significantly affects the stability of Islamic banks but does not significantly affect institutional development. Additionally, financial turmoil can influence how effectively Islamic banks manage their businesses in response to banking stability. The outcomes are robust across various robustness methods. Implications ― The results imply that the efficiency of Islamic banks has a pivotal role in banking stability, considering the efficiency level. To ensure the stability of Islamic banks, practitioners and regulators of Islamic banks have to achieve and maintain the efficiency of Islamic banks by implementing the required policies and guidelines.Originality/Value ― Previous studies examining the impact of Islamic banks' efficiency on banking stability remain limited. The paper fills the research gap by examining how Islamic bank efficiency affects banking stability, considering the effects of financial turmoil and institutional development.

The Impact of Inflation on Commercial Banks in China

Abstract: Inflation is an important issue that affects the profitability and operational stability of commercial banks. Conducting an in-depth analysis of these influences while putting forward effective countermeasures can be beneficial to ensuring the stable operation of commercial banks. This paper focuses on the period from 1937 to 1949 where the Second Sino-Japanese War and the Chinese Civil War, which had contributed to severe inflation and disrupted the banking sector, and the formation of the modern Chinese banking system. This study critically examines the main causes behind inflation, evaluates their implications on the functioning of commercial banks. It also assesses both the positive and negative impacts on commercial banks, pointing out the challenges commercial banks face during different periods. For example, the market turmoil and policy changes in the 1940s have made it difficult for commercial banks to retain normal operation; therefore are suffering from making profits and inflation has made the situation even worse. In addition, this paper provides short-run and long-run strategies for reducing the negative effects of inflation, with consideration of Chinas unique economic structure and historical context. By integrating insights from historical and contemporary perspectives, this analysis aims to offer valuable views on the micro and macro impacts inflation could bring.

All that Glitters is Not Gold! Could M&As Post‐Bank Reforms be Just a Tool for Balance Sheet Embellishment?

AbstractThis study investigates whether the surge of mergers and acquisitions (M&As) that occurred in Italy after the enactment, in 2016, of a new reform of credit cooperative banks (CCBs) ultimately improved their performance. Worldwide, CCBs have proved to play a crucial role in spurring local economic development. With the adoption of a dataset composed of 594 Italian banks and 3933 bank‐year observations from 2008 to 2020, our results show a positive and significant impact of the 2016 reform on M&As among CCBs. However, contrary to the expectations of regulators, our results highlight a puzzling deterioration in bank stability of the CCBs involved in M&As, with no relevant improvement in capitalization and profitability, reinforcing the view that bigger is not always better, at least in the context of CCBs. Our evidence sheds light on the perils underlying a massive consolidation process of local banking industries, calling for a regulatory recalibration and further research investigating the impact of different growth models capable of preserving the diversity and unique characteristics of banks, rather than pursuing a ‘one‐size‐fits‐all’ model.

Stability Of Islamic Commercial Banks In Indonesia: Company Size, Profitability, And Efficiency

This study aims to analyze the effect of company size, profitability, and efficiency on the stability of Islamic commercial banks (ICB). This study uses a quantitative approach. The population of this study is Islamic commercial banks, and the sampling technique used is purposive sampling, obtained from four ICBs. The data source used is secondary data from each ICB's financial statements. The data analysis technique used is panel data regression analysis using e-views software version 13. The results of this study indicate that company size positively affects ICB's stability. However, profitability negatively affects ICB's stability. In contrast, efficiency does not affect ICB's stability. This study can complement existing theories, especially regarding the effect of size on company stability, and can be a reference for further research. Practically, this study can be a reference for banks in maintaining the stability of company operations in terms of company size and profitability.

The impact of corruption and Islamicity on bank stability and profitability: assessing the moderating effect in dual banking systems

Purpose This paper aims to examine the impact of corruption on bank stability and bank profitability separately for Islamic banks as well as conventional banks. Moreover, it also investigates whether the existence of Islamicity and corruption in the environment can moderate the Islamic banks-stability and Islamic banks-profitability relationships. Design/methodology/approach Sample of the study consists 136 banks comprising 70 Islamic and 66 conventional banks over the period 2015–2021 from nine countries with dual banking systems. Panel data fixed effect estimator with year effects is used to estimate the results. Findings Results of the study show that Islamicity is positively and corruption is negatively related to bank stability as well as bank profitability. Further, it is found that the effect of corruption is significantly different between Islamic and conventional banks, wherein conventional banks are more adversely affected than Islamic banks. However, an insignificant difference between Islamic and conventional banks is observed in the case of Islamicity. Practical implications The study provides theoretical and practical implications. On theoretical side, the study presents Islamicity as more reliable measure of religiosity based on Islamic values that can help in control of corruption by moderating corruption-bank stability nexus especially in dual banking economies which have high share of Muslim population. On practical side, the study recommends policy and operational measures for mitigating corruption aiming bank stability. Originality/value The results of this study contribute to the corruption-finance, religion-finance and dual banking literature. This study suggests that regulators and bank management must consider corruption and Islamicity while formulating their policies for better bank performance/stability.

Financial crisis of 1931? British banking stability and the role of open‐market operations

Financial crisis of 1931? British banking stability and the role of open‐market operations

Determinants of bank deposit in a small economy’s banking sector: a study of Fiji

PurposeDeposits, a liability component of banks’ balance sheet, are an important source of funding for commercial and retail banks. In this study, the authors consider deposits as dependent variable and examine factors (bank-specific, macrofinance and structural) that could plausibly explain deposits. Subsequently, the findings are expected to support analysts, bank managers and regulators, especially in small economies such as Fiji, for asset–liability management.Design/methodology/approachThis study uses a balanced panel of six commercial banks and two credit institutions over the period 2000–2022. To control for bank heterogeneity, a fixed-effect regression method is used.FindingsBank-specific variables such as bank size, profitability, loan-to-deposit ratio and bank stability are positively associated with bank deposits, whereas the capital adequacy ratio is negatively associated with bank deposits. Macroeconomic variables such as remittances and gross domestic product per capita are positively associated with bank deposits. Moreover, institutional variables such as control of corruption, political stability and regulatory quality are positively associated with bank deposits. However, tail events such as the global financial crisis of 2007–09 and the COVID-19 pandemic negatively influence bank deposits. Structural breaks for 2007 and 2011 of two banks (Bank of the Baroda and Bank of the South Pacific, respectively) are positively associated with bank deposits.Originality/valuePrevious studies have considered profitability, competition, nonperforming loans and stability of banks in Fiji. To the best of the authors’ knowledge, this study is the first to consider the determinants of bank deposits, an important source of funds for banks in many small countries including Fiji. In addition, this study examines the impact of structural breaks, tail events such as the recent pandemic (COVID-19) and institutional variables.

A comparative study of the secondary benefits of stormwater ponds in economically distinct neighborhoods of Tampa, Florida USA

Stormwater ponds manage urban runoff and mitigate storm-event flooding. Stormwater ponds also offer various secondary advantages such as filtering pollutants, providing a habitat for wildlife, and adding recreational value and access to green spaces to communities. However, stormwater pond features and their potential to offer secondary benefits can vary based on the initial construction and the ongoing maintenance practices. This study developed an assessment tool for evaluating stormwater ponds’ expected functioning for secondary benefits, including potential for pollutant filtering by shoreline vegetation, safety, and access by people for activities like walking or wildlife viewing. We used the tool to compare stormwater ponds in East Tampa and Riverview, Florida, communities with contrasting socioeconomic backgrounds. The overall pond functioning was consistent between both communities; however, several distinctions emerged between specific pond attributes. Suburban ponds exhibited narrower buffer zones, lower bank stability, and less lighting. Conversely, ponds in the lower-income East Tampa had lower accessibility due to a higher number of fences, more litter, and inferior water appearance. This study uncovered a need for consideration of stormwater pond secondary benefits in both communities and an untapped potential to transform stormwater ponds into vibrant green spaces.