Bank Policy Research Articles

Policy uncertainty and non‐performing loans in Greece

AbstractBased on the growing interest in understanding the impact of uncertainty on various aspects of the economy, this study investigates the long‐run relationship between economic policy uncertainty (EPU), its components, unemployment, capital adequacy, liquidity risk, and non‐performing loans (NPLs) in Greece. Our findings indicate several key results: (1) There exists a negative, long‐term co‐integrating relationship between EPU and its components with financial stability. (2) Unemployment and capital adequacy also exert long‐term negative effects on financial stability. (3) These results hold robustly even after decomposing the total NPL ratio into mortgage, consumer, and business NPLs. (4) Consumer NPLs exhibit the slowest adjustment to long‐run equilibrium among the NPL sub‐categories, with mortgages presenting the fastest rate of adjustment. The findings underscore important policy implications: initiatives aimed at reducing fiscal and banking policy uncertainties and fostering a stable environment for businesses and households could effectively manage NPLs more efficiently, as uncertainty influences NPLs not only in the short run but also in the long run.

Quantitative Easing and Climate Change: A Case Study

In the context of increasing global climate change, this article takes an in-depth look at how central banks can use quantitative easing to help address this issue. Based on three research methods: Green Bond, SDGs Bond, Carbon Trading Market and Carbon Reduction Project, this paper analyzes the pros and cons of specific measures of quantitative easing in dealing with climate change. The study found that the above three types of quantitative easing policies can effectively guide funds to green industries, promote green economy and sustainable development, and thus mitigate the economic impact of climate change. This research not only provides a new perspective for central bank policy making, but also provides investors with new opportunities for green investment. This paper suggests that the central bank should increase its support for green projects when formulating quantitative easing policies, and encourage investors to actively participate in green investment to jointly promote the response to climate change.

Negotiating North-South relations: The World Bank’s Grain Marketing Project in revolutionary Ethiopia, 1974–1978

This article explores the driving reasons that shaped the World Bank policy toward Africa in the 1970s through the lens of the relationship between the World Bank, western countries, and revolutionary Ethiopia from 1974 to 1978, during the negotiations for the Grain Marketing project (GMP). The trajectory of the GMP reveals that the World Bank’s attitude was shaped by external and internal factors as well. The organization operated under pressure of major Western shareholders and associated business groups demanding compensation for the nationalization of their assets. The continuation of negotiations and the final approval of the GMP, however, were primarily shaped by the demands of the Ethiopian government and the internal confrontation between the advocates of macro-economic orthodoxy and the supporters of a flexible approach to development. According to the latter, the relationship with Addis Ababa was a critical test for the World Bank’s legitimacy in sub-Saharan Africa at a time when demands for a New International Economic Order challenged established patterns of North-South relations.

An unconventional FX tail risk story

We examine how the tail risk of currency returns over the past 20 years were impacted by central bank monetary and liquidity measures across the globe with an original and unique dataset that we make publicly available. Using a standard factor model, we derive theoretical measures of tail risks of currency returns which we then relate to the various policy instruments employed by central banks. We find empirical evidence for the existence of a cross-border transmission channel of central bank policy through the FX market. The tail impact is particularly sizeable for asset purchases and swap lines. The effects last for up to 1 month, and are proportionally higher for joint QE actions. This cross-border source of tail risk is largely undiversifiable, even after controlling for the U.S. dollar dominance and the effects of its own monetary policy stance.

Applied regression modeling to propose policy recommendations for green banking development in Vietnam

In Vietnam, green banking plays a critical role in successfully implementing the National Strategy on Green Growth for 2021-2030, vision to 2050. Green banking helps businesses invest in projects, programs and infrastructure to reduce emissions and protect the environment. Therefore, qualitative and quantitative investigations were conducted to identify the critical factors of green banking development. The structural equation model (SEM) analyzes the complex relationships between several factors related to green credit based on a survey of 450 staff members. The research provides lawmakers and bank executives with the scientific basis for new ideas. This study seeks to improve green banking institutions and offer specific solutions to promote banking and credit products and apps to help enterprises expand their green credentials. The findings also support the government and functional agencies in improving project appraisal stages and strengthening hygiene and safety credit inspections in credit policies for green banks. Finally, the results have green credit applications that advise the government to enhance the regulatory framework of green banking under international standards to provide transparency. Simultaneously, improving the practicum framework for green economic sectors and developing conventional green financial markets is necessary to create a foundation for green banking development in the future.

Drivers of Service Quality and Customer Satisfaction in Kathmandu Valley

Customer satisfaction is essential for businesses to encourage them to share positive responses in buying products. It stands as a crucial factor in determining long-term success of any organization reflecting the extent to which their offerings satisfy customer expectations. The economic progress and business success rely on customer satisfaction affected by the empathy, assurance, responsiveness, tangibility, reliability etc. especially in banking sector. Therefore, this study examines how bank customers perceive service quality and impact on their satisfaction. It utilizes a descriptive and causality research design to explore the relationship between drivers of service quality and customer satisfaction based on primary survey data from Kathmandu valley. This paper concludes reliability, assurance, tangibility, empathy, and responsiveness as service quality drivers play a significant role in shaping customer satisfaction within the banking sector. Notably, tangibility, assurance, and empathy stand out as key influential drivers in determining customer satisfaction level in commercial banks within Kathmandu valley. The significance of this research lies in its relevance to policymakers in the banking sector, urging them to develop and execute diverse bank policies aiming to enhance customer satisfaction, thereby fostering the business and economic success of commercial banks in Nepal.

Greening Central Bank Policies: Euro Area vs Non-Euro Area EU Member States

Abstract Climate change has become relevant for central banks worldwide, but they are adopting their instruments at different speeds. This article compares the reactions of the Eurosystem with those of the other EU central banks. Do these central banks differ in their efforts to make their own policies “greener”? The article argues that the options and constraints to react to climate change diverge between central banks.

Analisis Faktor Pertumbuhan Kredit Bank Komersil Di Indonesia

This research analyzes the influence of Non-Performing Loans, Loan to Deposit Ratio, Loan Loss Provision, Equity Asset Ratio, Liquidity Ratio, Gross Domestic Product, Inflation, Interest Rate, Bank Capital, and Bank Size on Loan Growth Rate in banking companies listed on the Indonesia Stock Exchange (BEI) from 2019 to 2023. The method used is regression multiple panels with secondary data obtained through purposive sampling, covering 205 financial reports from 41 companies. The results of the analysis using Eviews 12 show that Non-Performing Loans, Loan to Deposit Ratio, Loan Loss Provision, Equity Asset Ratio, Liquidity Ratio, Gross Domestic Product, Inflation, Interest Rate, Bank Capital, and Bank Size have a significant influence on Loan Growth Rate. This research provides important insights into the factors influencing loan growth in the Indonesian banking sector, as well as implications for risk management and banking policy.

Dynamic leverage policy in Islamic and conventional banks during crises in the OIC countries: a procyclicality and prospect-theory analysis

Purpose The purpose of this study is to investigate and compare the dynamic leverage policies of Islamic and conventional banks within selected Organization of Islamic Cooperation (OIC) countries. The study specifically focuses on the concepts of leverage procyclicality and prospect theory. Design/methodology/approach To achieve the research objectives, the study uses data from three distinct periods: Crisis I (2007–2009), Crisis II (2011–2012) and Crisis III (2020). The analysis uses dynamic panel-data regression, using the generalized method of moments (GMM) technique. Findings The research findings indicate that both Islamic and conventional banks demonstrate leverage procyclicality. Interestingly, Islamic banks exhibit weaker leverage procyclicality during normal conditions but display stronger procyclicality during crises compared to their conventional counterparts. The application of prospect theory reveals that both bank types exhibit risk-taking or risk-averse behavior through leverage under certain financial and market performance measures as the first-level domain of the gain-vs-loss condition. Furthermore, during crises (as the second-level domain of the normal-vs-crisis condition), both Islamic and conventional banks experience heightened leverage. Notably, Islamic banks, owing to their lower risk exposure and greater shock resilience, demonstrate lesser risk-taking behavior through leverage than conventional banks, both during periods of underperformance and worsening conditions amid crises. These findings validate the extension of prospect theory's applicability in a two-level domain perspective. The dynamic nature of leverage policy, being procyclical and adhering to prospect theory, also varies following different crises specifically. Research limitations/implications The study's limitations include the unequal crisis periods (Crises I, II and III), leading to an imbalanced examination of their effects, certain financial and market performance metrics that fail to corroborate the expected hypotheses and the limited generalizability of findings beyond the selected OIC countries. Practical implications Understanding the intricate dynamics and behavioral aspects of leverage policy for both Islamic and conventional banks, particularly during crisis scenarios, proves crucial for reviewing banking regulations, making informed financial decisions and managing risks effectively. Originality/value This study enriches the current knowledge by presenting two key points. First, it highlights the dynamic nature of leverage procyclicality in Islamic banks, showing a change from weaker procyclicality in normal conditions to stronger procyclicality during crises compared to conventional banks. Second, it expands the application of prospect theory by introducing a dual-level domain context. Examining the comparative leverage policies of Islamic and conventional banks during different crises within OIC countries provides novel insights into leverage procyclicality and behavioral responses.

How Adam Smith's banking views influenced Hamilton, Jefferson, and the debate over the Bank of the United States

AbstractThe most sophisticated monetary and banking policy advice available in the decades after 1776 was found in Adam Smith's Wealth of Nations. Smith recommended free competition among nationwide banks of issue with minimal legal restrictions and no legal privileges. Yet neither Alexander Hamilton nor Thomas Jefferson accepted Smith's recommendation, despite their familiarity with his arguments, and despite Scotland's positive experience while following it. We spell out Hamilton's and Jefferson's theoretical disagreements, and explain how Smith's advice did not serve either founder's political agenda. For Hamilton, competitive banking without a single privileged national bank would not do enough to strengthen the federal government. For Jefferson, any federal chartering of banks would strengthen the federal government too much at the expense of the states.

THE RISE OF CRYPTOCURRENCIES AND THEIR POTENTIAL TO DISRUPT TRADITIONAL FINANCIAL SYSTEMS

This research investigates the impacts of cryptocurrencies on traditional financial systems and how their introduction has influenced modern financial policies. The paper employs a qualitative analysis of published research, including historical cryptocurrency data, macroeconomic policy data, and the inflationary and deflationary effects of cryptocurrencies. Additionally, it examines the impacts on central banking policies, user experiences, and overall cash flow within the economy. The findings provide a comprehensive overview and deeper understanding of how cryptocurrencies are reshaping contemporary financial systems.

Enabling cross border open finance systems in Latin America: is consent enough to develop them?

ABSTRACT Since 2016, digital finances have been disrupted by the introduction of open banking policies, which would facilitate data sharing in this particular industry. The UK and the EU have led this approach through the adoption of legal rules that enabled data sharing between financial institutions, particularly payment services providers, under users’ permission; lately, this has been slowly expanded into other financial services and called open finance. In this respect, certain Latin American countries have followed this, particularly led by industry efforts. In contrast to the EU, where the Digital Single Market facilitates the necessary conditions for sharing data, Latin America is fragmented in this respect. As such, this permission might be a weak basis for enabling a cross-border open finance ecosystem. This contribution will explore a selected cohort of Latin American countries and assess whether it would be feasible the development of a regional open finance system.

Estimating resource rents for Mozambique

This paper estimates resource rents for Mozambican coal mining using company-level data employing the residual value method devised by SEEA-Energy (the multi-purpose conceptual framework for organising energy-related statistics) and compares the findings with the World Bank's estimates of coal rents. The latter estimates are often used in the resource curse literature and also guide the World Bank's policy notes, forming the baseline of their policy advice on resource exploitation. On average, the results show unit coal rents for the 2011–2020 period that are less than half of the World Bank estimates, suggesting that the World Bank overstates coal rents for Mozambique considerably. The main driver of this discrepancy is the World Bank's underestimation of extraction costs. The results suggest that studies employing resource rent estimates should consider sensitivity analyses and greater use of local data, and that the World Bank's policy advice should be interpreted cautiously to avoid unreasonably high expectations.

Optimal Foreign Reserves and Central Bank Policy under Financial Stress

Optimal Foreign Reserves and Central Bank Policy under Financial Stress

Peran Bank dalam Pembiayaan UMKM dan Dampaknya terhadap Perekonomian Lokal

The role of banks in financing Micro, Small, and Medium Enterprises (MSMEs) and its impact on local economies is a crucial area of study in contemporary financial research. This study delves into the multifaceted relationship between banks, MSMEs, and local economies, employing a quantitative methodology coupled with a literature review technique. Through meticulous examination of existing literature and quantitative analysis of secondary data, this research aims to elucidate the extent of banks' involvement in MSME financing and its repercussions on local economic dynamics. By scrutinizing various financial reports, government publications, and academic sources, the study will discern patterns and trends in MSME financing patterns, evaluate the efficacy of banking policies supporting MSMEs, and assess the consequential effects on local economies, including growth indicators like employment rates and income levels. The findings are anticipated to offer valuable insights for banks, policymakers, and stakeholders, guiding them towards more informed decision-making processes and strategies to foster sustainable MSME growth and bolster local economic resilience.

The Implications of the Countercyclical COVID-19 Policy on the Performance of Rural Banks and Sharia Rural Banks in Indonesia

This study investigated the impact of the Indonesian government policies implemented through POJK No. 11/POJK.03/2020 on the banking performance of Rural Bank (BPR) and Sharia Rural Bank (BPRS) after the implementation of countercyclical policies to stimulate the country's economy affected by the COVID-19 pandemic in Indonesia between March and December 2020. Mixed method approaches were applied to analyze the contributing factors to different performances between seven Rural Banks and seven Sharia Rural Banks in West Sumatra that were randomly selected through purposive sampling based on proportionate assets. The quantitative data were financial statements sourced from the OJK 2021 Publications, and the qualitative data were collected from in-depth interviews with eight Directors of Rural Banks and Sharia Rural Banks selected from the snowball sampling. Analyzing Indonesian government policies embodied in the countercyclical policy, we found that banking policies in Sharia Rural Banks outperformed those of conventional Rural Banks, as reflected by the average ROA (1.16% vs 1.33%), ROE (0.09% vs. 0.08%), and NPL (6.67% vs. 6.82%). The contributing factor to this gap was the different internal policies of each institution to translate the countercyclical concept based on the operational principles, such as the interest rate of Rural Bank and margin of Sharia Rural Bank despite the fact that both banks shared practice in the principal deferment and credit extension.

The practice of generating information on the social responsibility of banks in the Russian Federation and the methodology of its analysis and assessment

Subject. This article discusses the need and expediency of assessing the indicators of non-financial reporting of commercial banks in terms of socially-oriented policy. Objectives. The article aims to identify trends and deviations from the recommendations of the Central Bank in order to assess the degree of uniformity of disclosure of such information and the problems arising in this regard. Methods. For the study, we used the methods of comparison, analogy, deduction and induction. Results. The article notes the ambiguity of approaches to the disclosure of information on social responsibility by banks, as well as the lack of unity in the disclosed information, which makes it difficult to compare the activities of different banks in this area of their activities. Based on a detailed generalization of the indicators recommended by the regulator for reflection in non-financial reporting, for the demonstration by the bank of its socially-oriented policy, as well as the practice of such disclosure, the article proposes a system for analyzing the level of social policy of a commercial bank. Conclusions and Relevance. On the basis of the above methodology, it is possible to draw a general conclusion about the level of social responsibility of a commercial bank. However, in order to fully use non-financial reporting for the purpose of making a management decision, it is necessary to solve the problems associated with the interpretation and comparability of both the social reporting indicators themselves and the initial information on the basis of which they were calculated. Taking into account the recommended methodology of the Bank of Russia, the proposed system will help use an adapted model for assessing the socially responsible activities of commercial banks in the Russian Federation, which will provide an opportunity for further comparison with other commercial banks.

STIMULATING THE DEVELOPMENT OF RESIDENTIAL DEVELOPMENT THROUGH MORTGAGE LENDING

The article is devoted to stimulating the development of housing construction through mortgage lending. The purpose of the article is to determine the role of mortgage lending in the development of the housing sector, in particular through its impact on supply and demand in the real estate market and pricing in this sector. In the course of the research, data analysis, correlation analysis, and methods of forecasting economic trends were used. Graphical methods were also used to provide a clear understanding of how changes in the mortgage market affect the development of the real estate sector. The results of the study show that mortgage lending is a key element in stimulating the development of the housing sector, as it not only directly facilitates access to finance for potential property buyers, but also indirectly affects the pricing and investment attractiveness of the housing sector. The paper shows that fluctuations in mortgage rates have a significant impact on the dynamics of supply and demand in the residential real estate market, as well as on price trends. In particular, rising mortgage rates tend to reduce demand for housing, as households expect better investment opportunities. There is also a strong correlation between mortgage rate increases and slower price growth. The expansion of the mortgage lending market and, consequently, a reduction in mortgage rates boosts supply in the real estate market. Nevertheless, it is found that such changes can have complex and ambiguous consequences, including the risks of market overheating and the formation of price "bubbles" that threaten the stability of the sector in the long run. In addition, the study found that mortgage lending facilitates the implementation of new construction projects and the expansion of the housing stock, which is an important factor in stimulating economic growth. At the same time, the analysis showed that the impact of mortgage rates on the real estate market depends on a wide range of factors, including the economic situation, central bank policy, consumer confidence and other macroeconomic indicators. The practical significance of the publication is to provide recommendations for the development of a balanced policy in the field of mortgage lending aimed at supporting the stable development of the housing sector and preventing potential destabilising factors in the real estate market.

The Impact of Central Bank Policy on Aspects of Bank Sharia Financial Behavior in the Money Market

Central bank policy has an important role in influencing the behavior of banks in the money market. This is important because banking movements can affect market stability and the economy as a whole. Therefore, analysis of the impact of central bank policy on bank behavior is very important to expand understanding of how monetary policy can influence the actions of banks participating in money markets. The research results show that central bank policies such as changes in interest rates, mandatory reserve policies, and market intervention have a significant impact on bank behavior. Interest rates set by the central bank can affect bank lending and investment interest, while mandatory reserve policies can affect banks' liquidity and their risk management strategies in the money market. This study also emphasizes the importance of transparency and communication from central banks in implementing policies. Clarity in policy can indirectly help in managing market expectations and help banks respond to changes in monetary policy. This research can be the basis for further research exploring how central bank policies can improve risk and liquidity management, as well as the stability of money markets and the economy. In conclusion, central bank policy has a significant impact on bank behavior in the money market, and policy communication and transparency are important factors in bank risk and liquidity management in order to maintain money market stability in the future.

Monetary policy and risk of commercial banks in Vietnam

This study investigates the bank risk-taking channel of monetary policy transmission by comprehensively analyzing multiple bank risk measurements amid monetary policy shocks in Vietnam. Using banking data for 2008–2021, a dynamic panel model is estimated to examine the risk exposure of 30 Vietnamese commercial banks. The paper employs the annual M2 money supply growth as a monetary policy variable, besides two policy interest rates established by the central bank. We find that an expansion of monetary policy benefits the quality of loan portfolios; however, reduced interest rates or an extended money supply increase insolvency risk. We also document that heightened economic growth corresponds to a reduced likelihood of credit and insolvency risks, while a surge in the inflation rate leads to an escalation in insolvency risk, manifested by a decline in the Z-score index. Overall, the findings on different risk dimensions in this paper are expected to draw a comprehensive picture of banks’ risk appetite and behavior in response to monetary changes.