Risk In Banking Sector Research Articles

Bank runs and media freedom: What you don’t know won’t hurt you?

This paper examines the influence of media freedom restrictions on retail depositor behavior during banking crises. Non-professional, retail depositors are particularly affected due to insufficient access to vital information about the banking industry's vulnerability and broad macroeconomic conditions amidst the crisis. Using data from 85 countries from 2004 to 2019, we found that during crises, higher media restrictions lead to an increase in the rate of household deposit withdrawals. If media restrictions hinder depositors from accurately assessing the banking sector’s exposure, there is a higher likelihood of panic-based response in uncertain times brought on by the banking crisis, potentially triggering bank runs. Furthermore, our results reveal that lower banking sector risk can mitigate the negative effect of media restrictions on retail deposit growth during a banking crisis, especially in middle-income OECD and non-OECD countries, countries with stronger institutional environments, and countries with higher financial literacy. As a policy suggestion, promoting financial literacy could help reduce information asymmetry and prevent panic withdrawals, even in environments with significant media restrictions.

The Mediating Role of Investment Actuaries in the Relationship between Banking Sector Risks and Geopolitical Risks

The Mediating Role of Investment Actuaries in the Relationship between Banking Sector Risks and Geopolitical Risks

Exposure to the ESG risk of the Polish banking sector

The main aim of the article is to explore changes taking place in ESG risk management in the Polish banking sector. The following research methods were used: in-depth literature studies, desk research methods, questionnaire survey methods, case study analyses, and observation and synthesis methods. The article verified the adopted research hypothesis, stating that knowledge and awareness of the importance of ESG risk in commercial banks in Poland increased, which is reflected in practical activities related to their bank risk management systems. The research that was conducted showed that Polish banks are increasingly aware of the ESG risk and the need for their inclusion in risk management processes. This inclusion takes place through various channels. However, an important aspect of this system is the assessment of banks' exposure to ESG risk. Commercial banks in Poland use mainly qualitative methods, although they also recognise quantitative ones to measure the scale of ESG risk taken.

Economic uncertainty, public debt and non-performing loans in the Eurozone: Three systemic crises

Recent systemic crises, from the Global Financial Crisis to Covid19 pandemic, have put geoeconomic uncertainty to the forefront of financial services decision-making and planning. Yet, to-date, research connecting economic policy uncertainty to banking sector risks and performance metrics is lacking. This paper examines the relationship between the Economic Policy Uncertainty Index on the non-performing loans across 19 Eurozone member states, using panel data for 194 banks during the 2001–2021 period. As the crises covered were endogenous to the banking sector regulatory and operational environments, we introduce a novel control for the interaction between crises severity and duration, and banking sector strategic and operating environment. This control is proxied by public debt changes which reflect fiscal measures deployed to ameliorate effects of the crises. We find that rising EPU during the crises is associated with higher NPLs and government debt. We also document how this relationship is changing over time and across different crises.

The Profitability and Credit Risk of the Egyptian Banking Sector: Do Financial Technology Entrants have an Impact?

The Profitability and Credit Risk of the Egyptian Banking Sector: Do Financial Technology Entrants have an Impact?

Türk Bankacılık Sektöründe Kredi Riskinin Belirleyicileri: Sahiplik Yapısı Önemli Mi?

This study aims to determine the internal and external factors affecting credit risk in the Turkish banking sector from 2003-2018. Unlike previous literature, we employ the Augmented Mean Group estimator with allowance for heterogeneity and cross-sectional dependence to analyse the effect of external factors within a dynamic framework. Findings indicate that internal and external factors affect credit risk, and the impact of these factors varies dramatically across ownership structures. These results suggest that one regulation does not fit all to overhaul credit risk management in the Turkish banking sector.

ASSESSING CREDIT RISK AND LENDING PATTERNS IN THE NIGERIAN BANKING SECTOR

This article aimed to assess credit risk and lending patterns in the Nigerian banking sector. It collected secondary data in yearly time series from 2007 to 2020 to analyze nonperforming loans, liquid reserves to asset ratio, capital-to-asset ratio, domestic credit, and exchange rate and their effects on the Nigerian lending rate. The constructed and analyzed model was estimated via the least square technique to achieve its goals. The findings of this research reveal a beneficiary influence of nonperforming loans, capital-to-asset ratio, and the exchange rate on the bank lending rate. While liquid reserves to asset ratio and domestic credit exhibit inverse relation with the lending rate. Hence, the relationship between nonperforming loans, liquid reserves to asset ratio and domestic credit are statistically significant with the lending rate. Capital-to-asset ratio and exchange rate exhibit an insignificant correlation with the lending rate. The research suggests that private individuals and business entities should exercise caution when taking out loans and ensure that the total amount borrowed is sufficient to cover all of their needs. Banks must use caution when making loans; the prime motive for lending money should not be merely to make a profit. Credit risk is considered substantial; banks need to lower the nonperforming loan portfolio, and by this, both banks and their clients will experience great benefits.

Study of the Impact of the Pandemic on the Stability of the Russian Banking Sector

The purpose of this study is to investigate how the COVID-19 pandemic affected the stability of Russian banks. To achieve this goal, an economic and statistical analysis of the risk and liquidity indicators of the Russian banking sector for the period 2008–2020 was performed. The analysis was based on the methodology for assessing the financial stability of deposit institutions developed by the International Monetary Fund.The analysis includes the following steps: determining the level and dynamics of sustainability indicators in 2020 in comparison to the pre-pandemic levels in 2019; constructing historical trends of the indicators over the last 12 years, including the pandemic crisis, applying the Hodrick – Prescott method used in macroeconomics to filter time series; identifying deviations of the indicators’ actual values from the trends, which made it possible to detect cyclicity in the indicators’ dynamics.The findings revealed that the pandemic crisis of 2020 did not lead to a deterioration in the stability of the Russian banking sector, moreover, the liquidity risk indicators improved in comparison to the pre-crisis period. At the same time, the historical trends for the period 2008–2020 showed an increase in risks in the banking sector, however, this was caused by a sharp "outlier" of risk indicators during the previous crises of 2009 and 2015. The identified deviations of the indicators from the trends allowed us to conclude that the risk raises and the liquidity increases in the sector during recession of the credit cycle and crises, and vice versa during the cycle expansion and credit boom, with the exception of 2016–2018 and 2020, which is explained, respectively, by the structural changes in the banking sector and the pandemic crisis. The results of this study could be valuable for analysts and regulators in the course of macroeconomic analysis and forecasting, as well as for banks when improving internal risk management procedures to address the economic cyclicity concern.

Artificial intelligence and loan default: The case of commercial banks in India

AbstractThe supervised machine learning algorithm‐based logistic regression predicts the loan default risk by correctly identifying banks with risky/safer loans in the Indian commercial banking sector. Higher levels of interest income and spread have been found negatively associated with the probability of loan default risk, while interest expended, operating expenses and credit deposit ratio are positively related to the level of loan risk. The study recommends that a high spread, low rate of interest expended and lower operating expenses, will effectively lower the probability of loan default risk in the Indian banking sector.

Bank branching deregulation and the credit risk of the regional banking sector: Evidence from city commercial banks in China

From 2006 to 2011, with the change in regulatory policies, most regions of China relaxed restrictions on the intercity branching of city commercial banks, which led to a significant increase in the number of nonlocal branches of city commercial banks. We assess the impact of this bank branching deregulation on the credit risk of the regional banking sector across 286 prefecture-level cities in China. We find that deregulation has increased the credit risk of the regional banking sector in host cities by intensifying competition and encouraging risk-taking behaviors such as “lowering lending criteria” and “attracting deposits with higher interest”. Moreover, this effect becomes more pronounced in regions with a higher initial level of the loan-to-deposit ratio and regions with a higher initial level of competition in the banking sector.

Systemic risk in the Scandinavian banking sector

AbstractThe banking sectors in the Scandinavian countries are highly concentrated, typically undercapitalised and they have suffered through several crises since the 1990s. This article analyses the systemic risk in Denmark, Norway and Sweden focusing on the co‐dependence in the tails of equity returns of an individual bank and the overall banking system. We use, partly in a new way, conditional cross‐quantilograms (CQs) for this purpose. We find that the CQs are positive and statistically significant in the low and high quantiles indicating that the Scandinavian banks are systemically linked. The low‐quantile dependence is relatively stronger compared with the magnitude of dependence in the other quantiles. These results hold even after controlling for equity market volatility and economic policy uncertainty. We further observe that the systemic risk was insignificant from the early—2000 to the outbreak of the global financial crisis (GFC). However, after the GFC and the euro zone crisis, the systemic risk has increased substantially. Finally, we find that bank size has a positive relationship with systemic risk (low‐quantile dependence) while return on asset and loan to deposit ratio exhibit a negative influence. Furthermore, these relationships are asymmetric across quantiles.

A Study on the Transnational Spillover Effects of Bank Risk and Sovereign Risk-From the Perspective of COVID-19 Epidemic Situation.

In recent years, the world economy and the global financial system have closely intertwined, deepened economic and financial integration via cross-border investments, financings, imports, and exports. Since banks serve as the core of a country's financial system, the risk status of banks directly affects the country's national credit and financial security. The current complexities of the international and domestic environments are increasing geopolitical risks. Moreover, there is increasing uncertainty recognition in the financial and economic development of all countries, more systemic banking risks, and sovereign risk transfer elements. In this scenario, resisting external risk input is essential to enhance risk prevention ability. Therefore, this paper adopted the VAR-based time domain and frequency model for a multi-dimensional analysis of the two perspectives of banking and sovereign risk spillover effects. The empirical results indicate that the entire sample under the static overflow effect always shows that most of the absorption is the banking sector risk, and sovereign risk is the leading risk spillover. In the frequency domain perspective, the short-term spillover effects between bank and sovereign risk are dominant. Moreover, in relation to the outbreak and continuous spread of the COVID-19 pandemic, the spillover effects are often dominated by adverse, long-term scenarios.

Financial stability: a ‘vaccine’ for tail risk of the global banking sector in the shadow of the pandemic

ABSTRACT This study examines the association between bank tail risk and the ongoing COVID-19 pandemic. We use a sample of 868 listed banks across 98 countries from 2002 to 2020, yielding a cross-country panel sample of 15,791 bank-year observations. We find that different components of bank tail risk (i.e. systematic and idiosyncratic) have increased during the health crisis but less so for stronger banks (i.e. more profitable, higher market valuation, lower stock volatility). The result implies that the pandemic results in a higher possibility of suffering extremely large losses in the stock prices of the global banking sector. However, banks with higher profitability and financial stability levels can better prepare themselves to tackle the crisis more effectively and hence are less likely to suffer extreme equity devaluations. Therefore, we contend that financial stability acts as a ‘vaccine’ for the bank tail risk in the shadow of the pandemic. We finally confine the results to some specific geographic settings; typically, they are more intensified in countries with more financial freedom, middle income-generating, and large banks.

Spillover effects of banking systemic risk on firms in China: A financial cycle analysis

This paper investigates the spillover effects of banking sector risk on firms in China and explores the risk transmission channels from the perspective of financial cycle. We use the banking risk-taking and systemic risk as the proxies of financial booms and busts. Our study yields four main findings. First, the banking risk-taking reduces firm risk in financial booms. Higher financing costs and constraints, larger firm size and financing scale, and state ownership inhibit the spillover effects. Second, the banking systemic risk increases firm risk during financial busts. Higher financing costs and constraints, larger firm size and financing scale, and state ownership facilitate the spillover effects. Third, the magnitudes of banking risk spillovers vary across industries, and this effect is more pronounced in the manufacturing industry. Fourth, bank risk-taking affects firm risk differently through various channels in different leading periods. When leading 1 to 3quarters, banking risk-taking reduces firm risk, and channel variables inhibit the spillover effects. However, when leading 4 to 8 quarters, the rising bank risk-taking eventually increases firm risk, and channel variables amplify its spillover effects. Our study offers important policy implications for risk assessment and mitigation in the Chinese loan market.

Measuring systemic risk in the global banking sector: A cross-quantilogram network approach

We propose a new systemic risk index based on the interdependence of extreme downside movements of stock returns using the cross-quantilogram and network analysis approach. While quantile dependence allows for sensitivity in times of market downturn, the topological network properties allow for capturing the interconnectedness of the banking system and identification of the specific contribution of each individual bank. Using this design, the proposed systemic risk index is not only easy to calculate and interpret but identifies the banking system's significant transmitters and receivers of extreme downside risk. For the empirical evaluation of the proposed risk index, we use a sample of 83 large banks during the 2003–2020 period, spanning multiple recent crises affecting the banking market. The proposed index is found to be robust in comparison to major alternative systemic risk measures.

ВЛИЯНИЕ САНКЦИЙ 2022 ГОДА И ПАНДЕМИИ COVID-19 НА ДЕПОЗИТНЫЙ РИСК БАНКОВСКИХ КРЕДИТНЫХ ОРГАНИЗАЦИЙ

The paper considers the problems of deposit risk in the Russian banking sector; the main factors affecting the level of this risk, and mechanisms for minimizing risk in conditions of uncertainty. The Russian economy is under the sanctions of European countries and the United States due to a special military operation in Ukraine, and is also recovering from lockdown and restrictions caused by the COVID-19 epidemic. The combination of these factors complicates the work of enterprises and makes it necessary to study the impact of deposit risk on the Russian banking sector. Special attention is paid to the impact of systemically significant banks on the market of deposit products in Russia. One of the main tasks was to identify the impact of credit institutions on the resource base of the banking sector and deposit risk.

Problems and Major risks in the Banking Sector of Azerbaijan

Aim. The presented study aims to perform a comprehensive and in-depth analysis of problems and risks in the banking sector of Azerbaijan and to develop recommendations for improving the efficiency and reliability of its functioning in accordance with national interests.Tasks. The author shows the key problems and risks in the country’s banking sector, focusing on dollarization as the main risk; investigates the content and causes of dollarization; examines new trends, particularly the impact of the COVID-19 pandemic on the banking sector of Azerbaijan.Methods. A systems approach to identifying the major factors affecting the development of the banking sector in Azerbaijan serves as the methodological basis of this study. The author also uses the methods of scientific analysis, such as the statistical method, comparative, fundamental, and functional analysis, and expert assessment. The study reflects the ideas set forth in the scientific works of economists on the problems of the institutional development of the banking system in the country under consideration.Results. According to the results of the study, the patterns and current problems in the development of the banking sector of Azerbaijan after the devaluation of 2015 are identified. Its major risks and current state are analyzed, and the reasons for the dollarization of the economy as the main channel of risk for the banking sector of Azerbaijan are determined. In addition, the impact of the COVID-19 pandemic on this sector is analyzed.Conclusions. Positive and negative aspects are identified by performing a risk analysis of the banking sector of Azerbaijan. On the positive side, there are large strategic monetary reserves, a relatively low level of public debt, a single authority for regulating and supervising financial markets, basic risk management elements, and full deposit insurance. The vulnerabilities of the banking sector of Azerbaijan include fragile capital positions of the banking system, high credit risks of banks, low capitalization of banks, lack of legal mechanisms for regulating and selling non-performing assets, lack of effective tools for the rehabilitation and restructuring of banks, weak corporate governance in the financial services sector, low financial literacy, increased monetary and credit risks in the banking sector.

The banking instability and climate change: Evidence from China

We show novel insights on the impact of climate change on banking stability utilizing network analysis techniques from the perspective of low-carbon transition. The framework depicts the risk dependence between banking sector and energy sectors based on the stock volatility information. Employing a Chinese dataset during 2009–2019, we show that low-carbon transition drives an increasing dependence of banking sector's risk on the new energy sector, while it depends less on the traditional energy sector with a turning point in 2012. On average, banking sector exhibits a more pronounced risk dependence on the new energy sector than the traditional energy sector. This study provides new evidence on the impact of climate policy on banking stability, which has policy implications for macro-prudential regulations.

Determinants of Credit Risk in the Turkish Commercial Banking Sector: New Findings

Determinants of Credit Risk in the Turkish Commercial Banking Sector: New Findings

Shifting balances of systemic risk in the Chinese banking sector: Determinants and trends

We examine the evolution and factors of systemic risk in the Chinese banking sector over the last decade from the perspective of domestic and international investors. We apply the SRISK measure of systemic risk to a representative sample of listed Chinese institutions that captures up to 60% of total banking assets and utilize the Granger-causality network-based approach to demonstrate interlinkages among Chinese banks beyond the largest financial institutions. We show a dramatic increase in systemic risk after 2011 and the increased contribution of small- and medium-sized banks. We also identify causal relationships from housing prices, economic policy uncertainty and shadow banking towards systemic risk and from shadow banking to housing prices. According to our results, the concerns from both domestic and international investors about the stability of the Chinese banking system are well justified and a systemic event could be caused by distress in a Chinese financial institution outside the group of the largest banks.