Bank Risk Research Articles

Оцінювання кредитних ризиків у системі ризик-менеджменту банківських структур

The effective lending activity of the bank depends on the qualitative assessment of the creditworthiness of borrowers. This process determines not only the success of an individual banking operation, but also the entire credit policy of the bank. Modern banks use different approaches to creditworthiness analysis, because each loan agreement has its own specifics. The article summarizes and forms the main elements of the bank’s risk management system, substantiates the significant impact of such factors as the use of the latest technologies, stress management, and the culture of risk management. It is determined that the main and additional elements of the risk management system should take into account the features of the organizational and financial structure of each bank. In order to improve the methodologies for assessing the risks of banking activities on the basis of modeling methods and machine learning, the article proposes a conceptual model for assessing the credit risk of a commercial bank, which allows to implement the following stages: to form an information space for such an assessment and to carry out a scoring assessment of the creditworthiness of borrowers. As a result of the implementation of the first stage of the study, a set of observation objects is formed, assessed using a set of indicators; a binary characteristic of the client’s creditworthiness has been determined, which in turn determines the sign of the client’s attractiveness for lending. On the basis of the aggregate of selected factors, a comprehensive scoring model for assessing the borrower’s creditworthiness has been implemented, which allows to determine the rules for categorizing variables. A logistic regression has been constructed by the method of step-by-step exclusion and its significance has been assessed. Each client is assigned a score using a scoring card, on the basis of which a credit rating forecast for new borrowers is also calculated. The results of the research can be used by banks to improve the risk management system, as well as help banks to increase their efficiency and competitiveness.

Systemic Risk in Banking, Fire Sales, and Macroeconomic Disasters

Systemic Risk in Banking, Fire Sales, and Macroeconomic Disasters

Microfoundations of Value Creation in Bank Risk Taking: Exploring the Effects of Gender and Training

Microfoundations of Value Creation in Bank Risk Taking: Exploring the Effects of Gender and Training

Risk assessment and spatio-temporal characteristics analysis of water bloom in three large-scale eutrophic reservoirs in Fujian Province, China

The occurrence of water blooms in reservoirs poses a serious threat to water safety, so the assessment of water bloom risk is crucial. In this study, we constructed a reservoir water bloom risk index (RWBRI) using the trophic state index (TSI), floating algae index (FAI), temperature, precipitation, and wind speed datasets, and estimated and validated the water bloom risk levels of three large-scale eutrophication reservoirs in Fujian Province, China, from 2019 to 2023 based on the Sentinel-2 MSI dataset at the pixel scale. The results showed that there is no positive correlation between the TSI and FAI parameters of the three reservoirs (the significance test coefficients for Shanzai Reservoir, Dongzhen Reservoir, and Shanmei Reservoir were −0.455**, −0.371**, and −0.049, respectively, and ** indicates that the reservoir passed the statistical significance test at the 0.01 significance level). The TSI of Shanmei Reservoir was less fluctuating and more stable than that of Shanzai Reservoir and Dongzhen Reservoir, but the average value of FAI was higher. The average value of water bloom risk in Shanzai Reservoir and Dongzhen Reservoirs is higher than Shanmei Reservoir (0.47, 0.46, and 0.41, respectively), but the trend of annual average changes indicates that the overall risk of Dongzhen Reservoir is decreasing, while the risk of Shanzai Reservoir and Shanmei Reservoir is increasing. Due to the influence of weather, the water bloom risk in spring and summer is higher than that in fall and winter in the three reservoirs, and the highest risk value usually occurs in summer. The high values in Shanzai Reservoir were mainly distributed in the two inlet channels in the northern and southwestern parts of the reservoir, the bank risk was higher than in the other areas of Dongzhen Reservoir, and the high value of the risk in Shanmei Reservoir was mainly distributed in the center of the reservoir. The RWBRI method can be used for water bloom risk identification in reservoirs with eutrophication trends by comparing it with four-hourly and monthly water quality level data.

ТЕОРЕТИЧНІ ЗАСАДИ УПРАВЛІННЯ РИЗИКАМИ НЕПЛАТОСПРОМОЖНОСТІ БАНКІВ З УРАХУВАННЯМ ІНТЕРЕСІВ РІЗНИХ ГРУП СТЕЙКХОЛДЕРІВ

The aim of this study is to conduct a critical analysis of existing theoretical positions on bank risk management, taking into account the interests of different stakeholder groups, and to develop a model for their communication and interaction with the bank to avoid insolvency risks. The relevance of this research is determined by the fact that, in modern economic conditions, the insolvency of banks affects not only the ability of clients to freely operate their funds placed in bank deposits but also significantly influences the stability of the country's financial system as a whole, since banking institutions are financial intermediaries in the financial market and significantly affect the macroeconomic indicators of the country. The following methods were used in writing the article: theoretical analysis, critical review, quantitative analysis, modeling, and analysis of legislation. The article thoroughly examines the important topic of managing insolvency risks of banks, focusing on the interests of various stakeholder groups. The author conducts an in-depth analysis of the relationship between banking liquidity and solvency, considering them as key elements of the stability of the banking system. The practical value of the article lies in the fact that the author presents a critical review of existing theoretical approaches to managing banking risks, including the assessment of quantitative-qualitative indicators of different types of banking liquidity risk. Special attention is given to the development of a model of communication and interaction between banks and their stakeholders, aimed at avoiding insolvency risks. The author proposes a comprehensive approach to identifying and managing different categories of risks, taking into account the interests of all stakeholders. A key aspect of the article is the development of an effective model for interaction with stakeholders, which allows optimizing risk management and ensures greater transparency and openness in banking activities. As a result, the article provides valuable information for professionals in the field of banking management and risk management, and can also be useful for developing strategies for banks' interaction with stakeholders in the context of managing financial risks.

How can Chinese A-shared listed bank’s ESG activities affect their risk-taking?

The sustainable development of society has gradually been the world’s attention at all levels. At the 75th session of the UN General Assembly, the Chinese government said it would aim to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. All levels of government in China are also responding to the call, and how to promote green and sustainable development has become China’s top priority to achieve high-quality double reduction goals. As a banking-led prosperous economy, how to implement the Environmental, Social, and Corporate Governance (ESG) concept in the banking industry has become the most important to achieve the double reduction goal of quality and quantity in China. In recent years, the CBRC and the People’s Bank of China (PBC) have issued much guidance on transforming the banking industry through ESG. Considering that the number of A-share listed bank companies in China, especially the number of local banks (urban commercial banks and rural commercial banks), has increased in recent years, it is also considered that the existing research focuses on the relationship between ESG management and bank performance, and there is little analysis on bank risk. Based on the annual data of China’s A-share listed banks from 2018 to 2022, this paper uses regression analysis to explore the relationship between the implementation of ESG and bank risk-taking.

Geographic complexity and bank risk: Evidence from cross-border banks in Africa

I construct a novel dataset to measure the geographic complexity of cross-border African banks and relate it to their default and earnings risk. The results suggest that having a higher degree of geographic complexity decreases risk. Further results show that the negative relationship between geographic complexity and risk is significantly channeled through changes in banks’ loan quality. Following the recent exit from Africa by major international banks, indigenous African banks could be encouraged to expand further across the continent to take advantage of available opportunities, in addition to diversifying their risk. The success of such expansions, however, may largely depend on effective credit management.

New Dimensions of Data Breach Risk in Global Investment Banks and the Role of Operational Risk Managers in Managing that Risk

New Dimensions of Data Breach Risk in Global Investment Banks and the Role of Operational Risk Managers in Managing that Risk

Research on the Impact of Financial Technology on the Liquidity Risk of Commercial Banks

Research on the Impact of Financial Technology on the Liquidity Risk of Commercial Banks

Research on ESG score impacted on credit risk of commercial banks

Research on ESG score impacted on credit risk of commercial banks

Nexus between economic freedom and bank risk-taking: Evidence from us commercial banks

Using the two-stage generalized linear modelling (GMM) technique, we examine the connection between economic freedom and its constituents and bank risk-taking in the US. The findings indicate that bank risk-taking restrictions are caused by restrictions on property rights, government honesty and accountability, government expenditure and taxation, and monetary, commercial, and financial independence. But financial institutions benefit from taking more chances when they are free to trade and invest anywhere, they like. The risk of well-capitalized banks is reduced by economic freedom while the danger of undercapitalized banks is increased. Banks with enough capitalization benefit more from economic freedom and its component than do those with insufficient capital. According to the data, risk management contributes more to good governance than any other factor. The findings hold up across different risk metrics and sample sizes. Our findings have ramifications for monetary liberty and the willingness of commercial banks to take risks.

How macroeconomic conditions affect systemic risk in the short and long-run?

This study quantifies the effects of macroeconomic variables on various market-based systemic-risk measures in 24 European banks over the 2008–2019 period. In a first step, I measure daily systemic risk for banks based on ΔCoVaR, MES, and SRISK frameworks, and examine the contributions of individual banks to aggregate systemic risk during specific stress events. Systemic risk in European banks has risen in the wake of the global financial crisis and the Brexit referendum result. In a second step, I investigate how macroeconomic conditions affect systemic risk in the short and long-run. I find that three systemic risk measures have a long-run stable relationship with EU industrial production, EU inflation, Euribor, and US equity market volatility, but some variables have opposite effects in the short and long-run.

An analysis of the effect of asset securitization on the credit risk of Chinese commercial banks

An analysis of the effect of asset securitization on the credit risk of Chinese commercial banks

Examining the moderating effect of bank size on the financial risk and performance linkage of Islamic commercial banks

Financial performance is very important for Islamic banks to ensure the sustainability of their business in providing banking products and services according to Sharia principles or Islamic law. This research examines the impact of financial risk on the financial performance of Indonesian Islamic commercial banks (ICBs), with bank size as a moderating variable. The research was conducted on all Indonesian ICBs from 2017–2021. Fixed effects models are employed to account for potential heterogeneity across banks and control for time-invariant unobserved factors. These models allow for estimating the within-bank variation over time, capturing constant bank-specific characteristics over the study period. The results of this research state that financing and operational risks significantly negatively impact financial performance. In contrast, liquidity risk does not significantly negatively impact financial performance. Furthermore, from testing the moderation hypothesis, the results of this study state that total financing reduces the significant negative effect of financing risk and operational risk on ICB Indonesia’s financial performance. However, total financing does not reduce the significant negative effect of liquidity risk on the financial performance of Indonesian ICBs.

The impact of non-performing loans on systematic risk of banks: evidence from the European market

The impact of non-performing loans on systematic risk of banks: evidence from the European market

Mergers and acquisitions bank strategy against systematic risk before the COVID-19 pandemic

This study examines the relationship between the reduction of systematic risk and mergers and acquisitions (M&As) only in the Greek banking system. We have to mention that Adam et al. (2012) analyzed and estimated the time-varying betas of the banking sectors in eight advanced markets but they did not find strong evidence of declining systematic risk before the recent financial and sovereign crises, in contrast to our own work which deals with the systematic risk of banks in emerging economies. This research aims to investigate if the Greek systemic banks reduced the systematic risk after the main wave of M&As that started and completed soon after the international financial crisis of 2009, but before the new financial crisis that the COVID-19 pandemic brought in Greece. The purpose of this monograph was to examine the impact of systematic risk (Beta b) from those M&As. Our findings were extracted from multiple linear regressions using the capital asset pricing model (CAPM) and showed that the reduction of systematic risk succeeded after M&As that took place in the Greek banking industry after the international financial crises but before the COVID-19 pandemic. For this reason, maybe in some other economies mainly in Europe, the banks would follow the same strategy of M&As to reduce their systematic risk.

Forecasting Loan Risk of Banks with Machine Learning in Main Street Lending Program

Forecasting Loan Risk of Banks with Machine Learning in Main Street Lending Program

Assessing the effect of green credit on risk-taking of commercial banks in China: Further analysis on the two-way Granger causality

Green credit is a new financial instrument that has emerged in response to the call for the transformation of the “green economy" model. It aims to utilize financial means to support green industries and environmental projects, serving as a crucial lever for the integration of social and economic benefits. It also represents a significant developmental direction for the future credit business of banks. Leveraging microdata from 36 banks spanning the years 2007–2022, this study explores the correlation between green credit and the risk-taking behavior of commercial banks in China, building upon the DID model. Meanwhile, Granger causality tests are employed to investigate the bidirectional relationship between these two core objects. The research results indicate that green credit has a short-term mitigating effect on the risk-taking behavior of commercial banks. This risk-mitigating effect is more pronounced among banks with smaller assets and lower profitability. However, this effect diminishes over time, ultimately resulting in an increased propensity for risk-taking in the long run. Moreover, this highlight posits that the credit risks of banks do not influence the implementation of green credit policies. Consequently, this paper offers essential reference value for the risk management practices of commercial banks in the emerging economies and other global countries.

The impact of non-performing loans on systematic risk of banks. Evidence from the European market

The impact of non-performing loans on systematic risk of banks. Evidence from the European market

Research on the impact of digital transformation on the systemic risk of banks

Taking 26 listed commercial banks in China from 2010 to 2021 as a research sample, this paper empirically analyzes the impact and mechanism of digital transformation on bank systemic risk. The results show that digital transformation significantly reduces the systemic risk of banks, and the mechanism analysis finds that digital transformation inhibits the systemic risk of banks through two major channels: improving the operational efficiency of banks and reducing bank risk-taking. The results of heterogeneity analysis show that the digital transformation of small and medium-sized banks has a more significant inhibitory effect on the systemic risk of banks. This study provides a reference for better driving the digital transformation of banks and preventing systemic risks in the banking industry.