Banking Sector Research Articles

AI as decision aid or delegated agent: The effects of trust dimensions on the adoption of AI digital agents

AI digital agents may act as decision-aid or as delegated agents. A decision-aid agent helps a user make decisions, whereas a delegated agent makes decisions on behalf of the consumer. The study determines the factors affecting the adoption intention of AI digital agents as decision aids and delegated agents. The domain of study is banking, financial services, and Insurance sector (BFSI). Due to the unique characteristics of AI digital agents, trust has been identified as an important construct in the extant literature. The study decomposed trust into social, cognitive, and affective trust. We incorporated PLS-SEM and fsQCA to examine the factors drawn from the literature. The findings from PLS-SEM suggest that perceived AI quality affects cognitive trust, perceived usefulness affects affective trust, and social trust affects cognitive and affective trust. The intention to adopt AI as a decision-aid is influenced by affective and cognitive trust. The intention to adopt AI as delegated agents is influenced by social, cognitive, and affective trust. FsQCA findings indicate that combining AI quality, perceived usefulness, and trust (social, cognitive, and affective) best explains the intention to adopt AI as a decision aid and delegated agents.

Unveiling asymmetric return spillovers with portfolio implications among Indian stock sectors during Covid-19 pandemic

This paper aims to provide a systematic inquiry into the return spillover dynamics between a network of Indian sectoral indices during the pre- and post-pandemic periods. To analyze the same, this paper uses the asymmetric time-varying parameter vector autoregressions (TVP-VAR) framework. Furthermore, in the spirit of Broadstock et al. (2020), we perform dynamic portfolio exercises based on common hedging techniques and the minimum connectedness portfolio approach to determine what better captures asymmetry. Our daily dataset includes 12 sectoral stocks spanning from January 01, 2017, to May 5, 2023. The findings reveal that negative connectedness dominates throughout the sample period, demonstrating that profit-maximizing agents and risk-averse investors are more likely to react negatively to news. We also show that in the network, the average net transmitters are the banking and other financial service sectors, whereas the net receivers are the information technology, pharmaceutical, and fast-moving consumer goods sectors throughout the period under consideration. Our results show that the minimum connectedness portfolio (MCoP) approach is a very useful method based on Sharpe ratios, as it is either the first or second most profitable among these three competing methods. These results, therefore, yield valuable insights for policymakers and investors

Capital structure: Its effects on earnings volatility, cash flows, and financial performance in commercial banks

This study aimed to clarify the effect of capital structure on earnings volatility and cash flows in the commercial banking sector. The research focused on all 15 banks listed on the Amman Stock Exchange, and data were gathered from their financial statements between 2018 and 2022. The study employed multiple regression analysis to assess the data and test hypotheses. Previous studies have shown mixed results, with some finding a positive relationship between capital structure and financial performance, while others presented opposing views. The findings of this study provide statistical evidence that the debt-to-asset ratio (DTA) positively influenced operating cash flows and their volatility, while negatively affecting profits and their volatility. Additionally, the debt-to-equity ratio (DETE) positively impacted operating cash flows, their volatility, and profit volatility. These results suggest that banks should aim for a balanced capital structure to maintain stable profits and cash flows over time. This requires careful consideration of risks, regulatory requirements, market conditions, and the cost of capital. A balanced approach, involving both debt and equity financing, helps banks manage the risks of fluctuating cash flows and profits.

Are ESG scores driven by financial information? Evidence from European banks

In recent years, investors' increasing focus on sustainable investments and the sustainability orientation of companies has led to parallel growth in the market for environmental, social and governance (ESG) performance and ESG rating agencies. However, even though ESG rating agencies have become very influential institutions, the literature has found that ESG performance ratings provided by different agencies often differ from each other. This causes consequences that should be considered, such as complex evaluation of companies' ESG performance and uncertainty in ESG investment decisions. Therefore, it is necessary to identify which determinants influence ESG performance. This study aims to identify the internal determinants of an ESG score using bank-specific balance sheet indicators such as capital and risk ratios. The analysis focuses on the European banking sector from 2018 to 2022. Banks mainly foster the transition to a more inclusive and sustainable economy. Moreover, after the recent financial crises, banks have increased their social responsibility practices, strengthening their credibility, trust and reputation. Generalised estimating equations with standard error robust to heteroscedasticity were used. The results reveal that the factors that most influence the ESG score provided by ESG rating agencies are bank size and liquidity risk exposure. The larger the size of the bank and the lower the exposure to liquidity risk, the higher the ESG score assigned.

Assessment of the banking sector's exposure to hydrometeorological events in Costa Rica

This study examines, for the first time, the exposure of the credit portfolio of the banking system in Costa Rica to hydrometeorological events, specifically excess rainfall events, with a focus on firm credit at the canton level. We propose a credit risk indicator to identify cantons with credit portfolios that are more affected by rainfall events. Moreover, we introduce a novel approach with respect to firm level data to assign a single productive location to firms with two or more establishments. We find that cantons with the highest number of excess rainfall events represent a small share of the average credit balance of the country. Furthermore, we observe that the top three cantons with the highest credit risk score are driven by economic activities that are not expected to be notably vulnerable to extreme rainfall.

The Influence of Budget Planning on Financial Expenditure: Evidence from Tier One Commercial Banks in Nairobi County, Kenya

This study examines the influence of budget planning on financial expenditure among tier one commercial banks in Nairobi County, Kenya. The research was grounded in Agency Theory. Using a descriptive survey design, data was collected from 112 respondents across six tier one banks. The study employed correlation and regression analyses to investigate the relationship between budget planning practices and financial expenditure. Results indicate a strong positive correlation between budget planning and financial expenditure (r=0.684, p<0.01). Regression analysis revealed that budget planning significantly influences financial expenditure (β=0.327, p<0.05), explaining 32.1% of the variance. The findings suggest that effective budget planning practices lead to improved control over financial expenditure in tier one commercial banks. This study contributes to the understanding of budgetary control practices in the Kenyan banking sector and provides practical implications for bank management.

The Impact Of Cashless Payments On Smes’ Financial Performance In Mount Lebanon

Cashless payments are one of the innovations playing a significant role in business strategy. However, in Lebanon, the economic and financial crisis has forced SMEs to primarily use cash as a mode of payment, leading to numerous issues affecting their financial performance. To overcome these challenges, companies are seeking to adopt cashless payments outside the banking sector to better control their finances and adapt to rapid technological advancements. This study aims to examine the impact of cashless payments on the financial performance of SMEs in Mount Lebanon, highlighting the factors affecting the adoption of this payment method. A survey was conducted with the leaders of 183 SMEs in the region, and the results of multiple regression analysis, carried out using SPSS software, confirmed the significant impact of electronic payments on the financial performance of SMEs in the region. Specifically, mobile money and E-transfer have a significant positive relationship with financial performance. Furthermore, the study identified that competition, risks, and ease of use are the behavioral intention factors that affect the adoption of cashless payments. Consequently, leaders must adjust their strategy by integrating cashless payments to improve their financial performance.

Impact of Bank-Specific Factors on Capital Adequacy in the Nigerian Banking Sector: An Empirical Analysis

The study investigates the divergence between the capital adequacy of banks in Nigeria and the Bank for International Settlements' (BIS) global standards for bank capital adequacy. It specifically examines the factors affecting capital adequacy in Nigerian banks. The main objective is to evaluate how specific factors impact capital adequacy within this context. Data spanning from 2012 to 2022 from the Central Bank of Nigeria's Statistical Bulletin was collected for 13 selected deposit money banks in Nigeria. Econometric methods were employed to analyse this data. The findings indicate that asset quality and return on equity (ROE) adversely affect the capital adequacy of Nigerian deposit money banks during the study period. Conversely, bank liquidity, bank size, management efficiency, non-performing loans, and return on assets positively influence bank capital adequacy in Nigeria. It is recommended that particular attention be given to bank liquidity and bank size, as these factors significantly enhance the capital adequacy of Nigerian banks within the reviewed of period

The rise of the walking dead: Zombie firms around the world

We build a comprehensive new dataset spanning listed and private nonfinancial zombie firms across Advanced Economies and Emerging Markets over the past two decades. Our findings reveal a global rise in the prevalence of these unproductive and unviable firms, particularly since the Global Financial Crisis and the Covid-19 pandemic. We show that private firms exhibit lower zombification rates due to their lower average survival rates. Our paper also offers a new perspective on zombie lending drivers: lenders may rationalize zombie lending based on overly optimistic expectations of a recovery in zombies’ future earnings. We then document that macroprudential policies targeting bank capital and loan restrictions can effectively mitigate the adverse effects of zombification. However, strengthening the banking sector alone may not suffice without robust insolvency frameworks prepared to manage firm restructuring and insolvency.

Financial measures and banking crisis: New evidence

This paper assesses the power of measures related to the financial cycle to predict the probability of a banking crisis. Data are at a yearly frequency, span the period 1980–2020, and cover 196 countries. The standardized cumulative credit-to-GDP ratio is important for advanced economies and to a lesser extent for low-income developing countries, but it is not for emerging economies. IMF and World Bank policymakers and analysts need to take a more comprehensive approach to evaluating financial stability and systemic vulnerabilities in emerging economies and low-income developing countries because of their financial institutions’ deep informal banking sector.

Organizational Culture Change and Adaptation in the Face of Digital Transformation: A Study of Jambi’s Banking Sector

The advent of digital transformation has necessitated significant changes in organizational culture and adaptation strategies, especially within the banking sector. This study aims to examine the impact of digital transformation on organizational culture change and adaptation within the banking sector in Jambi, Indonesia. A mixed-methods approach was employed, incorporating both qualitative and quantitative data collection and analysis techniques. Semi-structured interviews were conducted with key stakeholders within the banking sector in Jambi, including bank managers, employees, and customers. Additionally, a survey was administered to a larger sample of bank employees to gather quantitative data on their perceptions of organizational culture change and adaptation in the face of digital transformation. The findings of this study indicate that digital transformation has had a profound impact on organizational culture change and adaptation within the banking sector in Jambi. The study revealed that banks that were successful in adapting to digital transformation were those that had a strong culture of innovation, collaboration, and customer-centricity. These banks were also more likely to have invested in employee training and development programs to equip their workforce with the necessary skills to navigate the digital landscape. In conclusion, this study provides valuable insights into the challenges and opportunities associated with organizational culture change and adaptation in the face of digital transformation within the banking sector. Additionally, investing in employee training and development is crucial for ensuring that the workforce is equipped with the necessary skills to thrive in the digital era.

Banking financial technologies: Evolution of development in Russia

Subject. This article examines financial technologies used in the banking sector. Objectives. The article aims to analyze the practices of using financial technologies in the banking sector and determine the areas for their further development. Methods. For the study, I used description and classification, and the methods of cognition, including analysis and induction. Results. The article defines the level of development of financial technologies in Russia, their role in the functioning of the banking sector, the stages of development of banking financial technologies in Russia, and the main trends in the application of technological innovations in the activities of banks. Conclusions and Relevance. Financial technologies represent a huge potential for innovation in the banking sector. The results obtained can be useful for professionals in the field of banking and management, as well as for researchers interested in the impact of innovative technologies on the banking sector.

Macro-economics and firm-specific factors impacting the non-performing loans of vietnamese commercial banks in the context of COVID-19

The COVID-19 pandemic has created unprecedented economic disruptions worldwide, with the banking sector being one of the most affected industries. This paper aims to explore the impact of various factors on the nonperforming loans (NPLs) of Vietnamese commercial banks during the COVID-19 pandemic by employing a Bayesian hierarchical regression approach. The analysis highlights that the pandemic has led to a significant and positive increase in the NPLs ratio of Vietnamese banks, indicating that the financial health of these institutions has been adversely affected by the crisis. Moreover, the study uncovers that the impact of COVID-19 on NPLs is not uniform across all banks. Specifically, state-owned banks have experienced a more pronounced increase in NPLs compared to their private counterparts. This disparity suggests that state-owned banks may be more vulnerable to economic shocks due to their broader exposure to sectors and enterprises heavily impacted by the pandemic. The findings of this research offer critical insights into the dynamics of the banking sector in Vietnam during a global health crisis and emphasize the need for targeted policy interventions. The results also underscore the importance of understanding the differential impacts of such crises on various types of financial institutions. By identifying the factors that contribute to the increase in NPLs, this study provides valuable information that can inform future strategies aimed at enhancing the resilience of the banking sector against similar economic disruptions. Furthermore, the findings highlight the effectiveness of the policies implemented during the pandemic to support the banking sector, suggesting areas for improvement and further research.

IMPACT OF DIGITALISATION ON BANKING SECTOR

The banking sector has been substantially changed by the fast development of digital technology. The effect of digitalisation on general financial services, client contacts, and banking operations is investigated in this article. In banking, digitalisation has brought about the automation of formerly manual procedures, therefore improving client happiness, efficiency, and operating expenses while lowering running costs. Offering 24/7 access to financial services from anywhere in the globe, services such internet banking, smartphone apps, and digital payment systems have transformed the way consumers connect with banks. Furthermore, digitalisation has helped fintech to emerge, therefore undermining established banking structures and encouraging more innovation and competitiveness. Advanced technologies such artificial intelligence (AI), machine learning (ML), and blockchain have been embraced by banks to guarantee better security in transactions, provide tailored services, and help to guide decisions. Although digitalisation has many advantages, it also brings problems like cybersecurity threats, data privacy issues, and the necessity of large technological infrastructure investment. This study also addresses its function in financial inclusion by enabling underprivileged groups to use banking services. Banks have to strike a mix between innovation and regulatory compliance, risk control, and client confidence as the digital revolution unfolds. The results of this research imply that banks must embrace digital transformation if they are to stay competitive in an economy becoming more and more digital and also meet the changing demands of tech-savvy customers.

Digitalization Management in the Corporate Banking Sector of Ukraine

Introduction. Digitalization in trendy banking services requires changing their relationships with corporate clients within the framework of an individual approach to each client in the context of the development of the latest information and communication technologies and Internet marketing. Therefore, improving the business customer service system based on innovative technologies in banks to increase their competitiveness and profitability remains relevant. Aim and tasks. This study aims to examine the trends in banks’ service of corporate clients in the context of the latest financial technology development and to determine the directions for forming a digitalization strategy in corporate banking in Ukraine. Results. The growth of corporate clients in the banking system of Ukraine in 2022-2024 became possible due to the digitalization of management and the implementation of electronic payment systems, which contributed to the growth in the number of open accounts, which increased by 27%, while the growth of remote servicing increased from 78% to 89% of business clients. The top 10 banks in Ukraine account for 75% of the funds in corporate clients’ accounts. Along with high reliability, the clients of these banks have come to value the digital services that banks provide that meet global standards. As a result of the growth in the volume of banking services provided to corporate clients in 2023 using digital technologies, the volume of fee and commission income of the Ukrainian banking system increased by 13% compared to 2022. Conclusions. The banking system of Ukraine is in the process of digital transformation that promotes the transformation of financial institutions into high-tech platforms capable of creating new algorithms for generating profit from digital technologies. Implementing digital transformation in the banking sector increases the number of banks` corporate clients and their satisfaction with banking products and services. This leads to an increase in the efficiency of banking activities and banks’ profitability through increased commission income. The forecasting of commission income of Ukraine’s banking system conducted in this study showed that further introduction of digitalization into corporate banking could contribute to their growth by at least 8% annually.

Sector and employee withdrawal behavior: evidence from licensed public and private sector commercial bank staff of Sri Lanka

Employee well-being and organizational effectiveness are seriously threatened by withdrawal behavior in the ever-changing business environment. This study explores the complex link between the banking sector (public and private) and employees' withdrawal behavior. Further, which sector of banking staff has more withdrawal behavior is investigated in this study. Regression modeling and quantitative analysis are used in this study to provide persuasive insights into how the sector affects physical and psychological withdrawal behavior (WBP and WBS). Primary data is used in this study, collected through a Likert scale questionnaire from 131 banking staff. The results show a significant and positive relationship between sector and withdrawal behavior. Moreover, the results confirm that private-sector banking staff show higher levels of WBP and WBS than the public sector. Results of the study suggest that both sectors' top management ought to consider some strategic human resource management practices to retain their employees, especially private licensed banks must consider more impressive supervision and motivation strategies to reduce employee turnover because private sector banking staff have a higher level of withdrawal behavior than public sector banking staff.

Cost stickiness in the Italian Mutual Banks and comparison among Less Significant Banks

This study investigates cost stickiness in the Italian banking system, with a specific focus on Less Significant (LS) banks, including Mutual Banks (MBs), during the period 2006-2019. The research seeks to identify whether LS banks exhibit asymmetric cost behavior, particularly in response to income and credit risk level variations. Utilizing a unique dataset of 5,446 observations and applying econometric models adapted from the seminal work of Anderson et al. (2003), this study provides a novel analysis of cost stickiness within a banking context, an area that has been underexplored in the existing literature. The results reveal significant cost stickiness across all LS banks, with MBs demonstrating more pronounced stickiness than other LS banks. Additionally, the findings show that higher levels of credit risk exacerbate cost stickiness, while greater efficiency mitigates this effect. These insights underscore the importance of tailored cost management strategies in the banking sector, particularly for MBs, and contribute to understanding the unique challenges LS banks face in Italy. The research’s originality lies in its focused examination of cost behavior within a distinct subset of the Italian banking system, providing new perspectives on how smaller, regionally-focused banks manage financial pressures.

Assessing the contribution of shadow banking to systemic risk in South Africa during COVID-19

Background: Systemic risk studies in the coronavirus disease 2019 (COVID-19) period focus mostly on the banking sector. Regulators however, yearn for data on the contribution of shadow banking to systemic risk during the pandemic.Aim: The primary goal of the study is to determine the contribution of shadow banking to systemic risk during the COVID-19 period in South Africa.Setting: The study focussed on shadow banking, non-bank financial institutions involved in credit intermediation outside the traditional banking system in South Africa.Method: Systemic risk is measured by conditional value-at-risk methodology using monthly market returns of fixed-income funds, funds-of-funds, money market funds and multi-asset funds from January 2015 to December 2021.Results: Shadow banking contributed to systemic risk during COVID-19, and systemic risk reached an all-time high during the onset of the pandemic. Money market funds exhibited higher systemic risk because of the COVID-19 shock. However, multi-asset funds and funds-of-funds are the classes that contributed more to systemic risk during the COVID-19 period. Furthermore, systemic risk trends of multi-asset funds and funds-of-funds increased with the rise in COVID-19 infections, except in the third wave when systemic risk peaked months after the surge in COVID-19 cases.Conclusion: Shadow banking contributes to systemic risk in South Africa and systemic risk peaked during the COVID-19 period.Contribution: There is growing evidence on systemic risk during COVID-19, and this study extends the focus to shadow banking. It draws attention of regulators to credit intermediation outside traditional banks.

Evaluation of the space-time effects of Covid-19 on household loans and savings in Romania - A spatial panel data approach at county level

This article examines the effects of the Covid-19 crisis on the banking sector of Romania using a spatial panel dataset of 21 months, from April 2020 to December 2021, among 41 counties. The empirical setup exploits the spatial and time-series variations of the banking sector during the pandemic via means of exploratory data analysis, simple linear models for each month with spatial diagnosis, and spatial panel data models with fixed effects. County-level differences and particular disturbances in the trend of banking services are highlighted against the turning points of the pandemic. We show that increasing Covid-19 infections result in higher loans and savings per capita, with significant spatial interactions given by the neighboring counties.

THE FACTORS AFFECTING THE ADOPTION OF A WELL-INTEGRATED INTERNET BANKING SYSTEM IN MAURITIUS

As the result of technological advancements, online banking is becoming a major feature for banks because it helps customers to save time and benefits banks financially. Although Mauritius’s banking sector is well developed, its e-banking sector has lagged behind other countries. Hence, the purpose of this study is to identify the factors affecting the adoption of internet banking. From the findings of the study, it can be seen that many Mauritians nowadays use internet banking, but it is principally the new generation whereas the older banking customers prefer the traditional way as they do not trust the internet to manage their money. Also, though many use e-banking now they still think human contact is important for banking relation and continue to visit their banks, thus proving that even if online banking is in well integrated in Mauritius now, it still has a long way to go for Mauritians to integrate it into their everyday lives and use it to its full potential.