Bank Stability Research Articles

Does Macroeconomic Moderate The Effect of Risk and Diversification on Financial Stability? Evidence from Islamic Commercial Bank

<em><span>Islamic banking's financial stability can improve efficiency and health and be able to withstand shocks originating from internal and external factors. This study analyzes the impact of risk, diversification, and inflation on the financial stability of Islamic banking. By using monthly time series data from 2018–2022, the analysis method used is multiple linear regression and moderate regression analysis (MRA) using the Eviews version 10 application. The results showed that the credit risk variable (NPF) has a significant negative relationship to financial stability (Z-Score). As well as the liquidity risk variable (FDR), financing diversification has a significant positive effect on the financial stability of Islamic banking (Z-Score). Macroeconomic variables (inflation) can strengthen the effect of financing diversification and weaken the effect of liquidity risk (FDR), but inflation cannot moderate the effect of credit risk (NPF) on the financial stability of Islamic banking (Z-Score). This study introduces a new theoretical approach to the conceptual relationship between variables. The findings can serve as a reference for monetary authorities in considering the impact of inflation in setting financial stability policies.</span></em>

Bank stability and economic growth in Sub-Saharan Africa: trade-offs or opportunities? And how do institutions and bank capital affect this trade-off?

Bank stability and economic growth in Sub-Saharan Africa: trade-offs or opportunities? And how do institutions and bank capital affect this trade-off?

Financial integration and banking stability: A post-global crisis assessment

The impact of financial openness on banking stability is complex, with debate on its benefits and drawbacks. Theoretical literature suggests a positive relationship between financial openness and growth, development, and stability, but empirical studies reveal conflicting evidence. This paper examines these contradictions by analyzing data from 58 countries between 2010 and 2020. Using various measures for financial openness and stability, and a double debiased machine learning (DDML) model to control for confounders, we find that financial openness generally enhances banking stability, evidenced by lower nonperforming loan ratios, higher capital adequacy ratios, and increased bank liquidity. However, receptiveness to capital inflows heightens financial vulnerability. Policy implications suggest deeper integration with global markets promotes stability without harming bank profitability, advising against prolonged use of macroprudential policies which hinder development. Our results emphasize careful proxy selection for financial openness and stability, advocating sophisticated techniques like DDML to uncover direct effects.

Determinants of banking stability in India

Purpose This study aims to examine the various internal and external factors affecting the financial stability of Indian Commercial Banks. The aim is to improve the effectiveness of the Indian banking system in facilitating the transmission of monetary policy and to strengthen its resilience in the event of a banking crisis. Design/methodology/approach A panel data regression analysis is employed on unbalanced panel data of Indian commercial banks including public sector, private sector and foreign sector banks for the period of 2005–2022. Findings This study revealed that Indian banks with higher profits and high capitalization are more stable than others. However, banks with large bank size and high management costs are less stable as compared to other banks. In the case of macroeconomic variables, foreign exchange reserves have a significant positive impact on banking stability. Moreover, the unemployment rate has a significant negative impact on the banking stability of India. Research limitations/implications Research identifies relevant micro and macroeconomic drivers pertaining to India’s banking stability, a developing economy. These findings have significant implications and can attract the attention of analysts, regulators, bankers and academicians in this area. Nevertheless, the scope of the study is limited to the variables chosen to evaluate their contribution to banking stability, but other variables may influence Indian banking conditions. Practical implications Indian banks are advised by the research to place a high priority on profitability, capitalization and effective risk management. Customers and investors should choose banks with strong metrics. The priorities for policymakers should be preserving robust reserves and tackling unemployment with focused initiatives. Adopting digitalization can improve banks’ customer service and operational effectiveness, which is important for overcoming economic obstacles. These tactics provide doable measures to improve the resilience and stability of the banking industry in India and other emerging nations. Originality/value This research differentiates from the rest by focusing solely on the Indian banking system, in contrast to previous ones that often treated India as part of a bigger part like the BRICS or South Asia continent. It acknowledges the need to comprehending the unique traits and difficulties faced by the Indian banking system. Moreover, the current study distinguishes itself by focusing on the combined impact of microeconomic and macroeconomic indicators in the Indian context, unlike earlier research that concentrated on assessing the effects of individual variables. The current study also investigated new variables like corporate governance and foreign exchange reserves in the context of Indian banking which have not been explored by existing literature. Research is also crucial in the context of the analysis’s time frame, since it captures the period of economic transformation that included demonization, implementation of GST, major mergers and global COVID-19 pandemic.

The Green Trilemma: Energy Efficiency, Banking Stability and Climate Risk in the Environmental, Social and Governance Context at World Level

In the following article, we analyse the relationships among banking stability, the efficiency of the energy system and climate risks at a global level. We present a detailed analysis of the literature relating to the relationship between the banking system and Environmental, Social and Governance (ESG) models. In our research, we try to verify whether it is possible to achieve energy efficiency, stability of the banking system and reduction of climate risk together, i.e. the “Green Trilemma”. The econometric analysis is conducted through the following models: Panel Data with Random Effects, Panel Data with Fixed Effects, Pooled Ordinary Least Squared and Weighted Least Squared-WLS. To estimate the variables, we used World Bank data. The analysis shows that ESG growth is negatively associated with energy efficiency and positively associated with banking stability and climate risk. It therefore follows that the Green Trilemma hypothesis is rejected. Countries can only target banking stability and climate risk through ESG models.

Experimental Study on the Effect of Flow Velocity and Slope on Stream Bank Stability (Part I)

The erosion of riverbanks is a significant and capricious national concern. The Al Muwahada channel in Iraq experiences instability in its banks, resulting in failure, retreat, and morphological alterations. These issues are mostly caused by factors such as the velocity of the flow, the angle of the slope, and type of soil. This study investigated the behavior of canal bank soil in response to erosion and variations in slope angle. Therefore, a physical model of a case study was established in the laboratory. Additionally, a slope angle of 26˚ is being utilized, which has not been previously studied in the laboratory. This angle will be tested with five different velocity values: 0.101 m/s, 0.116 m/s, 0.12 m/s, 0.13 m/s, and 0.135 m/s. The bank's deformation was measured for a period of 12 hours, which was divided into 4 equal intervals for each velocity. The study determined that a riverbank with a slope of 26˚ is more resistant to erosion when the velocity of the water is below 0.12 m/s. Velocities equal to or greater than 0.12 m/s have a substantial impact on the erosion of the riverbed. According to this study, a velocity of 0.12 m/s or higher leads to increased erosion of the riverbank. This is equivalent to a velocity of 0.804 m/s in the prototype channel. The section of the riverbank that has suffered the greatest damage due to erosion is the upper two-thirds. The used methodology supports global efforts to increase information about the behavior of river banks with unexplored rivers that have different flow velocities and bank slope angles. Doi: 10.28991/CEJ-2024-010-08-013 Full Text: PDF

Analysis of long-term and short-term bankline stability prediction considering seasonal variations: A study in lower Ganga Basin, India

River bank instability in the lower Ganga plain has been a major concern since the early 1850s due to its huge catchment flux and transboundary character, especially in the districts of Malda and Murshidabad. This study examines the seasonal dynamics of banklines in the upper and lower Farakka regions. The study assesses seasonal changes in the lower Ganga regions over 68 years (1955–2022) and projects trends for the next 22 years (2022–2044) using a GIS-based Digital Shoreline Analysis System (DSAS) approach. Long-term erosion prevails on the left bank at −19.38 ± 2.83 m yr^-1 (LRR method), with 38.61 % of transects showing a significant (p < 0.05) erosional rate, covering 58.85 % of total erosional transects. The right bank experiences accretion at a rate of 6.82 ± 2.83 m yr^-1, with 27.66 % of transects showing a significant erosional rate, covering 46.10 % of total erosional transects. Short-term fluctuations show erosion-accretion values surpassing the 50 % threshold, highlighting dominant erosion in 1975–1980 and 1985–2015. The non-cyclic erosion-accretion nature unveils erosional processes in 1975–2000 and 2010–2015 and accretional processes in 2000–2010 and 2015–2021 on the right bank during the monsoon season. The dynamics of the projected bank lines exhibit an accretional tendency over the right bank and an erosional trend over the left. Moreover, a strong correlation between the actual and expected bank lines is shown by the R2 value surpassing 0.95 for all seasons on both the left and right banks. The erosional trends are evident in Chachunda at a rate of −152.45 ± 198.92 m yr^-1, while Loharpur and Shikdarpur exhibit erosional rates of −237.88 ± 211.30 m yr^-1 and −243.59 ± 207.91 m yr^-1, respectively, in the lower Farakka. The seasonal long-term and short-term analyses are influenced by various forcing mechanisms like high sediment flux, enormous discharge, and drastic anthropogenic intervention that drives changing foci of erosion and accretion.

The Bibliometric Analysis of Bank Stability

The central role of banks in the economy has been getting more attention since the global crisis occurred in 2008 which was caused by the bankruptcy of large banks in the United States. The collapse of the economic system has had implications for high recovery costs so efforts to maintain bank stability must be thought continuously. The studies to analyze literature reviews on the subject of bank stability have never been specifically conducted therefore this study aims to determine and analyze literature mapping on bank stability by meta-data network and studies trends over the last 10 years (2013-2023). We used a literature review study method (a bibliometric analysis approach) to review 165 articles during the observation period. The results of this study shows that studies of bank stability associated with other keywords such as monetary policy, bank profitability, shadow banking, and price stability are still rarely conducted. Then, based on the development of studies trends over 2013-2023 shows a downward trend. This also opens up space for the study of bank stability considering that its existence is needed to prevent a global economic crisis. Furthermore, based on the density visualization, it shows that themes that are rarely associated with bank stability are efficiency, commercial bank, systemic rice, and price stability so these three variables could become study opportunities in the future.

Excess Liquidity and Bank Stability: Empirical Evidence in Vietnam

Excess Liquidity and Bank Stability: Empirical Evidence in Vietnam

Incumbent Banks Vs New Entrants: The Impact of Peer-To-Peer Lending and Market Power on The Stability of Islamic Commercial Banks

Incumbent Banks Vs New Entrants: The Impact of Peer-To-Peer Lending and Market Power on The Stability of Islamic Commercial Banks

How Female Representation in Indonesian Banks Affects Credit Risk: Evidence from Indonesia

This study examines the impact of female representation on the Board of Directors (DDP), Board of Commissioners (DKP), and Audit Committee (KAP) on credit risk in commercial banks in Indonesia. Utilizing panel data with 399 observations from various banks over a specified period, the Random Effect Model (REM) was applied to analyze the relationship between the independent variables (DDP, DKP, and KAP) and the dependent variable (credit risk). The results indicate that DDP has a significant negative impact on credit risk (coefficient -4.331768, p = 0.0000), suggesting that increasing the proportion of women on the Board of Directors tends to reduce credit risk. This could be attributed to the diversity of perspectives and caution in decision-making brought by women, as well as a push for higher transparency and accountability. The DKP shows a nearly significant negative impact on credit risk (coefficient -1.371344, p = 0.0593). Although its impact is not as strong as DDP, the presence of women on the Board of Commissioners can also reduce credit risk through enhanced supervision and control. Conversely, KAP does not have a significant impact on credit risk (coefficient 0.508613, p = 0.5055). This suggests that while gender diversity on the audit committee is important for regulatory compliance and internal control, it may not directly influence credit risk management. Theoretically, these findings support the literature that gender diversity on boards improves the quality of decision-making and risk management. Managerial implications emphasize the importance of increasing female representation on the Board of Directors and Board of Commissioners to reduce credit risk and enhance the financial stability of banks. Gender diversity policies should be implemented at all organizational levels to maximize their benefits in corporate governance. This study provides insights for policymakers and practitioners in the banking sector on the importance of gender diversity in managing risk and improving the financial performance of banks.

Does banking consolidation improve bank stability? Evidence from Sub-Saharan Africa

PurposeThis study aims to investigate the influence of banking consolidations on bank stability in Sub-Saharan African (SSA) countries for the period 2003–2019, following a series of bank mergers and acquisitions (M&As) in the region and whether regulation-induced bank M&As affect banking sector stability.Design/methodology/approachThe fixed effect panel regression model is used to understand the influence of regulation-induced and voluntary bank mergers and acquisitions on banking stability in SSA. The study also controlled for bank-specific factors, market concentration and macroeconomic variables that affect banking stability. The study used three measures of bank stability: the Z-score, risk-adjusted return on assets and risk-adjusted bank capital.FindingsThe study results reveal that voluntary bank M&As, market concentration, net interest margin, bank capital, bank deposits and income diversification influence banking sector stability positively. However, the findings show that regulation-induced bank mergers and acquisitions impact banking stability negatively. Where bank M&As were a result of banking regulatory reforms, called regulation-induced mergers and acquisitions (RIM&As), banking stability suffered, but voluntary bank M&As improved banking stability. Again, the study supports the concentration–stability argument rather than the competition–stability hypothesis. Therefore, more concentrated banking markets in SSA countries have more stable banks and fewer risks of system-wide bank failures. Other factors influencing banking stability in SSA are return on equity, bank efficiency (cost-to-income), bank size and deposits-to-assets ratio. However, their relationship is negative with the stability of the banking sector.Practical implicationsThe findings imply that the regulatory authorities should encourage voluntary bank M&As and not regulation-induced bank M&As to improve the stability of the banking systems in SSA.Originality/valueThe study provides new evidence on the effects of regulation-induced bank M&As on the stability of banks.

The Bank Concentration and Risk Exposure: Empirical Insights from Asian Countries

Background: The relationship between bank rivalry and stability is a subject of discussion in both theoretical and empirical research. The two competing theories, the (1) competition-stability and (2) competition-fragility theories, provide an alternate explanations, leading to controversy over the merger and acquisition policies implemented by Asian governments. This study examines the influence of bank rivalry, profitability, diversity, efficiency, and liquidity on bank stability in Asian countries. Methods: This study used annual data from 11 Asian countries spanning 14 years (2007-2020) and comprising 154 observations. The secondary data were extracted from the Global Financial Development Database (2023). The unit root test, cointegration test, and random effect model were the main methods employed in this work to assess stationarity, long-term relationships, and the influence of bank competition on stability in Asian nations, respectively. Results: The findings revealed that the bank concentration ratio (β = 1.975, p &lt; .01) and cost-to-income ratio (β = -.375, p &lt; .01) negatively affect bank stability, while the noninterest income-to-total income ratio (β = .180, p &lt; .05), credit-to-deposit ratio (β = .346, p &lt; .01), liquid assets-to-deposit ratio (β = .087, p &lt; .05), and net interest margin (β = .036, p &lt; .05) positively affect bank stability in Asian countries. Conclusion: This study concludes that bank competition and efficiency negatively affect bank stability, while income diversification, profitability, and liquidity positively affect bank stability in Asian countries. Novelty: Using a more recent dataset, this study analyzes the effects of competition on stability through cross-country analysis. This also offers extensive literature on the Asian context.

Stability and Performance of Conventional and Sharia Banking in Indonesia Before and After the Covid-19 Pandemic

This study examines the impact of the COVID-19 outbreak on the performance and stability of Indonesia's dual banking system. Our sample includes the top 20 banks by assets, both conventional and sharia, from 2018 Q1 to 2023 Q3. Data for conventional banks is obtained from Bloomberg, while data for Islamic banks is sourced from each bank's official website. We use ROA, ROE, and NIM as performance variables and Z-Score and NPL as stability variables. External factors such as GDP, Inflation, BI Rate, and Exchange Rate serve as independent variables, while bank-specific variables act as controls. Panel data regression is used to determine causal relationships between these factors and banking performance and stability. We also compare bank performance and stability before and after COVID-19 using the Mann-Whitney Test. Findings indicate that the pandemic significantly affected conventional banks' Z-Score, NPL, ROA, ROE, and NIM, while only NPL was significantly affected in sharia banks. The results highlight the significant impact of GDP, exchange rate, and BI Rate on banking variables, while inflation had no effect. The type of bank significantly influences performance but not stability.

The Benefits of Revenue Diversification on Bank Profitability and Stability: An Empirical Study on Indonesian Commercial Banks

Traditional business activities of commercial banks in Indonesia experienced a shift as indicated by the percentage of non- interest income per interest income from 26.1% in 2014 to 51.3% in 2020. The study aims to determine revenue diversification, internal determinants, and macroeconomic determinants in affecting profitability, stability, while also observing the role of bank capitalization. This study analyze sample of Conventional Commercial Banks in Indonesia from 2013 to 2020, using dynamic panel data GMM. Research proves that direct effect of non-interest income on revenue diversification has a significant positive effect on ROA and risk adjusted ROA, as well as a negative effect on NPL; as the indirect effect of only significantly affects RAROA. However, there are contradictions in the results of research using the interaction variable of revenue diversification with bank capitalization. The empirical test results also prove the role of the control variables cost income ratio, deposit to total asset, bank capital, loan to total asset, bank size, inflation rate, and GDP growth in affecting bank performance and stability. This study proves the specific benefit of revenue diversification for commercial banks in Indonesia as a whole, although it does not apply to BUKU 1 banks.

Implementing maqasid sharia: Impact on stability of Indonesian Islamic banks

Implementing maqasid sharia: Impact on stability of Indonesian Islamic banks

Should Basel-style liquidity requirements be set countercyclically? Evidence from a numerical analysis

We develop a model to compare the changes in banks' equilibrium capital and liquidity holdings under various versions of Basel-style requirements across economic cycles. We find that banks' liquidity is countercyclical while capital buffer is procyclical. Countercyclical liquidity-holding behaviour causes a larger liquidation of loans in economic expansions. We also find that Basel-style liquidity requirements help to lower banks' loan liquidations in economic upturns, although it is of limited effectiveness in economic downturns. We thus suggest that similar to capital requirements, liquidity requirements should also be set in a countercyclical manner. Our results show that capital requirements and liquidity requirements are complements in economic upturns in terms of enhancing banking stability and obtaining social welfare. Furthermore, Basel III outperforms previous regulatory versions in enhancing bank stability and social welfare in extreme situations.

Characteristics and Development Trends of the Digital Assets Segment in Modern Practice in Russia and Abroad

The paper aims to identify the key trends and risks associated with the introduction and spread of digital assets, including the digital ruble, in the Russian financial market. This study is timely due to the rapid growth of market capitalization for digital financial assets based on blockchain technology in both international and Russian financial markets, as more and more countries prepare to launch their own national digital currencies. However, there is a dearth of information in scientific and practical literature regarding the prospects, challenges, and risks associated with introducing digital financial assets, including the digital ruble, into Russia. The data for the analysis included official statistics and analytics from the Bank ofRussia and central banks of countries considering introducing digital national currencies. It also included the content of key Russian legislative acts related to digital currencies, as well as examples of the implementation of digital financial assets from Russian and international practices. The main research methods employed were a systematic approach, analysis of fundamental theoretical propositions in the literature, and case analysis. The paper discusses the existing types of digital financial assets, both internationally and in Russia, and assesses the demand for these assets in the Russian capital market, as well as their potential for lending to small and medium-sized businesses. It also considers the most common problems associated with the development of this segment and possible solutions, including regulatory measures. The second part ofthe paper explores the prospects and challenges of introducing a digital ruble into the Russian financial system. It assesses the potential impact of this new currency on the stability of domestic banks and monetary conditions in Russia, including inflation. Future research could focus on quantifying a wide range of risks associated with the introduction of digital financial assets, as well as modelling supply and demand for these assets.

Does Climate Policy Uncertainty Affect Bank Systemic Risk?- Empirical Evidence from China

ABSTRACT This study explores the impact of climate policy uncertainty (CPU) on the systemic risk of Chinese listed banks. We calculate China’s CPU index from 2010 to 2022 through text analysis of newspaper articles. Using data from 42 listed banks, we document that CPU increases bank systemic risk and this impact is heterogeneous. Moreover, external shocks exacerbate the impact, while robust internal indicators and strong financial regulation reduce it. Further analysis indicates that this effect is nonlinear. This study provides several new aspects to enrich the understanding of this impact, thereby providing more comprehensive ideas for policymakers to ensure bank stability.

Bank financing diversification, market structure, and stability in a dual-banking system

This paper examines the effects of bank financing diversification and market concentration on bank stability in Malaysia. Our study is unique as it investigates these effects within a banking industry that has undergone major restructuring due to the introduction and rapid penetration of a new banking type, Islamic banking. Despite its recent history, Islamic banking, having benefited from strong government support, has grown to command more than a third of the market share. The extensive realignment caused by such industry disruption makes the study of such effects on banking stability highly relevant and interesting. The study investigates 24 conventional and 18 Islamic banks in Malaysia from 2003 to 2019. Our results reveal differences in the above dynamics between the two bank types. Increasing diversification up to a moderate level enhances the stability of conventional banks, but only in less-concentrated markets. Very high diversification levels, however, impair their stability. For Islamic banks, stability seems unresponsive to financing diversification. Furthermore, while market concentration negatively affects the stability of conventional banks, Islamic banks appear to benefit from market concentration. These findings withstand our robustness tests using alternative measures of the key variables. Further examination suggests that these dynamics may have a temporal dimension. Our findings imply that a policy based on a single regulatory framework emphasizing increased diversification and competition across the industry may not be appropriate for all banks. Conventional and Islamic banks may require different regulatory treatment.