Conventional Banks Research Articles

Mediating effect of ESG performance on executive incentive compensation-financial performance relationship: evidence from MENA banking sector

PurposeThis study aims to investigate whether integrating environmental, social and governance (ESG) practices mediates the relationship between executive incentive compensation and the financial performance of Islamic and conventional banks in the Middle East and North Africa (MENA) region.Design/methodology/approachThis study used multiple regression models to analyze the effectiveness of ESG practices as a mediating variable in explaining the relationship between executive incentive compensation and banks’ financial performance between 2015 and 2021. The sample consisted of 57 Islamic and conventional banks operating in the MENA region, and the data were collected from the Thomson Reuters database (Data Stream).FindingsThis research paper showed the positive and significant mediating effect of the ESG practice on Banks’ financial performance. Thus, banks’ financial and stock market profitability is influenced by ESG information disclosure. This finding shows that taking ESG into account improves the relationship between executive incentive compensation and banks’ financial performance.Practical implicationsThe results may interest academic researchers, regulators and policymakers and would support stakeholders and decision-makers who wish to discover how executive incentive compensation affects financial performance in banks.Originality/valueThis study contributes to previous literature by studying the mediating effect of ESG practices on the relationship between executive incentive compensation and banks’ financial performance. Indeed, the originality of this research paper is justified by the scarcity of studies and, to the best of the authors’ knowledge, constitutes one of the first attempts to examine this relationship via a mediating variable, i.e. ESG.

Does Financial Technology Adoption Influence Bank’s Financial Performance: The Case of Jordan

This research will examine the impact of the adoption of financial technology on conventional banks’ financial performances. The research will place emphasis on the listed commercial banks at Amman Stock Exchange—ASE, using financial data for the period 2012–2020. The main study tool was a questionnaire that focuses on three main dimensions: financial inclusion—(FI), alternative payment methods—(APMs) and automation—(Auto). A total of 115 questionnaires were distributed to all commercial banks listed at Amman Stock Exchange—ASE. Multivariate regression analysis was employed to test the impact of the FinTech dimension as a proxy for independent variables on Jordanian commercial bank’s financial performance as a proxy for dependent variables. Based on the analysis results, the study concludes that all three FinTech dimensions: FI, APMs and Auto. reflected a positive significant impact on Jordanian commercial bank’s financial performance indicators (total deposit, total loans and net profit margin). Therefore, banks in general should invest more and more into financial technology tools and applications, in order to recruit potential clients and retain their current clients, to be able to sustain under fierce competition within the banking sector.

Non-Performing Micro, Small and Medium Enterprises Financing: Studies on Islamic Banking in Indonesia

Micro, Small and Medium Enterprises (MSMEs) have a very large role in the Indonesian economy, but they have the problem of not having access to capital from either banks or non-bank financial institutions. As a form of commitment to support government programs, conventional and Sharia banking extends credit to MSMEs. The amount of financing channelled by Sharia banking to the MSME sector has continued to increase, but the increase in MSME financing has had an impact on non-performing financing for MSME financing, which is above 5%. This study aims to determine the effect of financing margin, the financing-to-deposit ratio (FDR) and the inflation rate on non-performing financing (NPF) for MSME financing in Islamic banking in Indonesia. Multiple regression analysis is used in this study, and took a sample of 36 data was obtained from the financial services authority's Sharia banking statistical reports. This study found that the financing margin and the financing-to-deposit ratio (FDR) positively affect non-performing MSME financing. In contrast, the inflation rate does not affect non-performing MSME financing.

Analysis of Take-Over Implementation in Risk Mitigation in Murabahah Griya Financing Products at Bank Syariah Indonesia KCP Mojosari

Due to the high-interest rates charged by conventional banks, many of their customers are looking to switch to Islamic financial institutions such as Bank Syariah Indonesia (BSI), where they can take advantage of debt takeovers or takeover of Murabahah Griya financing products. This research aims to analyze the Take Over of Bank Syariah Indonesia KCP Mojosari in Mitigating the Risk of Griya Murabahah Financing Products. This research uses a qualitative descriptive approach, with data collected from descriptions provided by researchers about phenomena in the field. Researchers conducted interviews and screened records to obtain information for this study. Based on the findings of this research, it can be concluded that the takeover of murabahah griya financing by Bank Syariah Indonesia is legal according to the provisions of DSN-MUI fatwa No.31/DSN-MUI/VI/2002. Bank Syariah Indonesia collects all documentation related to the takeover of financing, checks customer track records, and carries out financing restructuring in an effort to reduce risks related to the takeover of murabahah griya financing.

Bank’s Financial Performance based on Solvency Ratio Before and During the Covid- 19 Pandemic.

This study aims to compare the financial performance of conventional banks listed on the IDX before and during the covid-19 pandemic (2019 to 2020) through solvency ratios. The population used in this study is companies listed in the finance sector on the Indonesia Stock Exchange among 2019 to 2020 as many as 106 companies. By using purposive sampling, 42 conventional banking companies were obtained, so that the sample of this study amounted to 84 because the research data used is 2019 to 2020. The Wilcoxon's Signed Ranks Test is used as a hypothesis analysis in this study by testing capital ratio, primary ratio, and risk assets ratio as solvency analysis. The results found from this study through the Wilcoxon test show that there is no difference in the financial performance of conventional banks before and during the covid-19 pandemic as measured by the solvency ratio.

Behavioural implications of risk–return associations based on the adjusted thermal optimal path method: Large versus small banks

AbstractThis article investigates the impact of bank size and business model on bank risk‐taking within the framework of the prospect theory. To fulfil this objective, we use the adjusted thermal optimal path model. The results suggest that conventional banks adopt the same risk‐taking behaviour for performance measures, regardless of their size. However, the size mainly influences the attitudes of managers towards Islamic banks. On the other hand, small Islamic banks, whether under‐ or over‐performing, take excessive risks. This behaviour is mainly explained by loss aversion. However, large Islamic banks that situated above the target are risk‐averse, since they adopt defensive behaviour. The results reveal that for risk measures and for both small and large banks, a bank's business model does not affect managers' attitude to risk. Therefore, small (large) banks adopt excessive risk‐taking (risk‐averse) behaviour and an offensive (defensive) strategy. The study has important implications for GCC banking regulators, supervisors, and market participants. Thus, our findings imply that understanding the impact of the bank size and business model on the risk‐taking behaviour of Islamic and conventional banks can help them reduce their risk and mitigate moral hazard and regulatory arbitrage behaviour.

Peer-to-Peer Lending as a Determinant of Federal Housing Administration-Insured Mortgages to Meet Sustainable Development Goals

In this paper, we investigate the influential factors of Federal Housing Administration (FHA) mortgage loans, focusing our research interest on peer-to-peer (P2P) lending, the most successful FinTech lending model. We consider P2P lending an alternative source of financing that marginal borrowers use to pay the increased mortgage down payment, making them eligible to receive a mortgage from conventional banks. In other words, we examine whether and to what extent P2P lending has a positive impact on the FHA loans volume by providing the ability to circumvent the loan-to-value (LTV) cap policy. As a result, P2P lending can be seen as a means for ”rationed” borrowers to have access to the market by reducing inequalities and promoting financial inclusion, thus achieving Sustainable Development Goals (SDGs). We employ hand-collected data from FHA mortgages, P2P loans, and other economic factors from all 50 U.S. states during 2007–2017 and use panel data techniques for this purpose. Research shows that P2P lending, GDP per capita, population growth, broad money growth rate, interest rate, unemployment rate, new housing units, and consumer confidence Index produce effects on FHA loans. We show that P2P lending, a nonconventional determinant, is causally associated with a significant increase in the count and volume of FHA loans, implying that P2P lending has a positive impact on them. The ability of P2P to bypass mortgage supply constraints (tightened LTV caps) by providing small loans to borrowers to meet the increased down payment requirements is very important to policy-makers, as it shows that constraining the volume of mortgage loans may be not achieved. Macroprudential tools designed to control credit growth may prove ineffective, as the use of alternative forms of lending helps circumvent them and ultimately leads to excessive household leverage with all the risks that it poses to the financial system.

The effect of capitalization on the competition-stability Nexus: Evidence from dual banking systems

The purpose of this paper is investigate how bank capitalization affects the relationship between competition and bank stability in dual banking systems. Using bank-level and country-level data from 17 countries over the period 2000–2019, the evidence shows a U-shaped relationship between competition and bank stability highlighting the dual importance of the franchise value and the risk-shifting paradigms in dual banking systems. The comparative analysis between conventional banks (CBs, hereafter) and Islamic banks (IBs, hereafter) reveals that, compared to CBs, competition is more detrimental to the stability of IBs. Importantly, our analysis reveals that higher bank capitalization moderates the negative effect of competition on bank stability and that the magnitude of the effect is similar between CBs and IBs.

Does Cross-Border-Establishment Improve Competition and Performance of Indonesia’s Financial Sector?

This study examines the effects of cross-border establishment of financial institutions on competition level in Indonesia’s financial sector. We use sample data on all conventional banks, securities firms, life and general insurance companies from 2013-2020. To measure competition, we use Lerner index, Boone indicator and Panzar-Rosse. Our analysis shows that the entry of foreign financial institutions may increase the competition in the financial sector. Further analysis shows that the increasing competition have positive impact to profitability and intermediation, reflected by the return on asset, loan ratio, transaction value, and insurance premium income to total asset ratio. However, foreign financial firms tend to have higher market power compared to domestic counterparts due to the efficiency in doing their businesses. Hence, domestic financial institutions need to boost efficiency, particularly through the adaption of technology and capacity enhancement of human resources, in order to compete with more advanced foreign financial firms.

Macro Stress Testing the Credit Risk of Conventional and Participation Banks in Turkey: A Nonparametric Quantile Regression Approach

ABSTRACT This paper applies a novel time series-based additive nonparametric quantile regression technique to stress test the credit risk of conventional and participation banks in Turkey. We particularly examine the effects of the exchange rate, unemployment rate, the policy interest rate, and the public debt-to-GDP ratio on the non-performing loan ratio (NPL) of Turkish banks at distinct quantile levels. We find that their effects are heterogeneous and significantly vary across different types of banks and quantiles. Overall, participation banks are more vulnerable to negative scenarios associated with the exchange rate, unemployment rate, and public debt ratio than conventional banks.

Research Trend in Supply Chain Financing

Supply chain finance (SCF) is one of the effective methods to reduce costs for company financing and enhance the effectiveness of such financing. The purpose of this research is to highlight the gaps and insights in Supply Chain Financing (SCF) literature and to identify the development trends of supply chain financing (SCF) research through journals or articles published by leading journals. Data Processing Using Bibliometric Method through Bibliographic Information from Scopus for the Topic of Supply Chain Financing. The research adopts a quantitative approach. This quantitative approach is utilized to analyze journals or articles published from 2000 to 2022. Meanwhile, the mapping system uses VOS viewer and biblioshiny. Through this bibliometric analysis, data and visualization of research data trends are obtained. The process consists of four steps: (1) defining search keywords; (2) initializing search results; (3) refining search results; and (4) compiling initial statistical data and analyzing the data. The research findings are expected to provide a stronger roadmap for further research in this field. By utilizing bibliometric analysis, the following data and visualization of research trends are obtained: (1) SCF research within the timeframe of 2000 – 2020 experienced a significant increase starting from the year 2018; (2) Yan N is the most effective author in this topic; (3) China is the country that contributes the most to this research topic; (4) The International Journal of Supply Chain Management is the journal that publishes the most articles on the SCF theme. Furthermore, the research findings on the SCF topic reveal a depiction that this financing model (SCF) is also implemented by Sharia-based banks (MURABAHAH SCF). Thus, it can be ensured that competition will arise between the conventional bank SCF model and the SCF from Sharia banks. Potential topics in future research on supply chain performance or supply chain coordination will be more interesting to research.

The relationship between corporate governance and financial performance in the Islamic and conventional banking industries: a Malaysian evidence

Purpose This study aims to investigate the relationship between corporate governance characteristics and the financial performance of both Islamic and conventional banks in the context of an emerging market, i.e. Malaysia. Design/methodology/approach This study includes 300 bank-year observations from Islamic and conventional banks over the period 2010–2021. The dynamic panel model (generalized method of moments [GMM]) was considered the primary estimation model that solves simultaneity, endogeneity and omitted variable problems as most governance variables are endogenous by nature. Hence, static models are considered biased after conducting the DWH test of endogeneity, and considering dynamic panel GMM is valid proven by Sargan and Hensen and first-order (ARI) and second-order (ARII) tests. Findings Based on the regression results, the authors discovered that board size, female participation in the board and director remuneration have a significant positive impact on bank performance, whereas board meetings have a significant negative impact. Furthermore, the board governance structure of commercial banks is found to be more passive than that of Islamic banks. Practical implications The study’s findings added a new dimension to governance research, which could be a valuable source of knowledge for policymakers, investors and regulators looking to improve existing governance mechanisms for better performance of conventional and Islamic banks. Originality/value The goal of this study is to add to the existing literature by focusing on the impact of female board participation and other board governance mechanisms in both conventional and Islamic banks on bank performance.

Dampak Pertumbuhan Dana Pihak Ketiga, Pertumbuhan Kredit, Risiko Kredit dan Financial Technology terhadap Profitabilitas Bank Konvensional Masa Pandemi Covid-19

This study was conducted with the aim of analyzing the impact of third party funds (DPK), credit growth and financial technology on the profitability of conventional banking during the Covid-19 pandemic. The population is conventional banking in Indonesia listed on the IDX in 2018-2021. Sample selection used purposive sampling technique. The secondary data source used taken from financial reports of samples for the 2018-2021 period and is analyzed using panel data regression technique. The findings indicated that DPK and credit growth have an insignificant effect on bank profitability, credit risk has a negative impact on bank profitability, while financial technology is proven to have a significant effect on bank profitability. The implication of the results is to provide an overview of the impact of DPK growth, credit growth, credit risk, and financial technology on the profitability of conventional banking during the Covid-19 outbreak.

PENGARUH MANAJEMEN MODAL KERJA TERHADAP PROFITABILITAS BANK DI BURSA EFEK INDONESIA

Working capital management in banking is important for the management of liquid assets. The development of digitization requires banks to provide larger capital for company development while still being able to generate profits for the bank. This research aims to identify the influence of working capital management on bank profitability. The research model uses panel data with research objects consisting of 36 conventional commercial banks listed on the Indonesia Stock Exchange from 2017 to 2021. Partially, this research found a significant positive relationship between Quick Ratio, Investing Policy Ratio, Loan to Deposit Ratio, Debtors Collection Period, Creditors Payment Period, and Loan Losses Provision to Return On Assets. This research also shows a significant impact of working capital management on bank profitability.

ANALISIS MODEL PREDIKSI FINANCIAL DISTRESS PERUSAHAAN BANK KONVENSIONAL MELALUI KOMPONEN RGEC

Banking companies are engaged in the financial sector which tend to pose a high risk in their operational activities than other companies in different sectors. If the risks arising from the operational activities of bank companies are not managed properly, then this can lead to bank failure problems that can threaten the country's monetary stability. In this paper, the authors aim to formulate a financial distress prediction model to identifying and predicting conventional bank companies that will experience financial distress problems. To achieve this goal, the authors use the discriminant analysis method by using 8 independent variables that represent each RGEC component such as NPL, Cash Ratio, Managerial Ownership, Institutional Ownership, Proportion of Independent Commissioners, ROA, NIM and CAR to the financial distress as the dependent variable with a nominal scale. Based on the test results, the authors found that there were 4 independent variables that were able to predict financial distress like NPL, Cash Ratio, ROA and NIM with an accuracy of 95.83%, where this value met the validation requirements in discriminant analysis and could be used to predict financial distress in other conventional bank companies.

PENERAPAN ALGORITMA C4.5 DALAM MENGUKUR TINGKAT KEPUASAN NASABAH PADA PT BANK MUAMALAT INDONESIA KCU MEDAN BARU BERBASIS WEB

In the field of service providers, sharia banking and conventional banking have differences in their characteristics which lie in the practice of running business operations, where operations are based on sharia principles, and this principle is the main attraction for customers to utilize sharia bank services. Quality of service is a key factor that will become a competitive advantage in today's banking world. This happens because the bank as a service company has the characteristic of being easy to imitate a product that has been marketed. The measurement method for determining customer satisfaction at Bank Muamalat is by applying data mining, where customer data that makes transactions will be inputted into the system and then processed using the C4.5 method with predetermined criteria. Data mining is a process of finding meaningful relationships, patterns and trends by examining large sets of data stored in storage using pattern recognition techniques. According to Algorithm C4.5 is an algorithm used to form a decision tree.

EXAMINING THE CAUSALITY OF CAPITAL TOWARDS LIQUIDITY CREATION BY INVOLVING THE CONTRIBUTION OF EFFECTIVE MANAGERIAL ABILITY

This study has a general purpose to extend a theoretical approach as an attempt to overcome the research inconsistency regarding the influence of capital in banking companies towards the creation of liquidity. In addition, the fact has shown that there was a problem of excess liquidity in Indonesian banks since 1997. To achieve the purpose, the effort is to offer a new concept or proposition derived from the main theory synthesis approach, namely the theory of efficiency and the theory of effectiveness. This study is a causality type observing the sample of conventional commercial banks, which are ranked among the ten banks and have the largest assets in Indonesia as of December 31, 2022. This study succeeded in finding effective managerial ability as a synthesis concept combining both theories. Furthermore, the finding from the research model suggests that effective managerial ability in granting credit is a mediator factor in the relationship between bank capital and the creation of liquidity. This study starts from the existence of various contradictions in the results of empirical research on the causality effect of bank capital on the creation of liquidity. The result shows the significant role of effective managerial ability in explaining the inconclusive findings of previous studies. It confirms that when the effective managerial ability in providing credit is higher, a manager could arrange the capital to create higher liquidity and generate greater revenue. The other results report that the creation of liquidity is influenced positively by the risk of credit and influenced negatively by the volatility of earning and reserve requirements.

NEXUS BETWEEN LIQUIDITY MANAGEMENT AND LOAN REPAYMENT AMONG MICROFINANCE BANKS IN EMERGING MARKETS: A PANEL ANALYSIS

Loan repayment remains the chief source of internally-generated liquidity reserves in the microfinance banks operating in the emerging markets in developing countries. Globally, reports indicate that of the loans disbursed in the United States of America, 45% of borrowers default on repayment, 60% of whom eventually end up as non-performing. A similar trend is reported in Nigeria with statistics indicating growth in overall default rate from USD1.612B in 2017 to USD 2.694B in 2021. Uganda recorded about USD.1.215B worth of non-performing loans in its MFI sector in 2018, from USD 324M in 2017. Microfinance banks (MFBs), as one of the institutions at the center of financial inclusion in Africa target to serve low-end borrowers who are prone to fall in default of honouring their arising loan repayment obligations. In Kenya, MFBs have recorded a steady rise in non-performing loans from Kshs.328M in 2018 to Kshs.1.9B in 2021. The loan repayment trend among MFBs reflects a trajectory that calls for urgent invention measures to secure steady operations to the extent of meeting their arising financial obligations. Previous studies on loan repayment have focused on conventional banking institutions, whose operational lending dynamics are significantly distinct from those of MFB. Existing literature is skewed in favour of investigating parameters associated to profitability. The main objective of this study was to establish the relationship between liquidity management and loan repayment among MFBs in Kenya. The anticipated incometheory underpinned the study objective. Secondary balanced panel data sourced from the annual reports of 12 regulated MFBs in Kenya were used. The study covered an eight-year period from 2015 to 2022, yielding 96 data points. Moderated multiple regression was applied to realize the study objective. Regression results showed that a unit change in liquidity management results in 2.01% significant change in loan repayment (β=0.020110, p=0.0085) with R2=82.7%. From the results, the nexus between liquidity management and loan repayment is positive and significant but weak. It is recommended that reliance on strict management of internally generated funds ought to be complemented with moderate external funding.

Management Incentives and Foreign Ownership Effect on Tax Avoidance with the Presence of Credit Risk

Avoiding taxes, combined with government underfunding, calls into question the fairness of the tax system. While tax planning is considered legal, tax avoidance is considered illegal. Legitimate tax avoidance may involve the use of financial tools and other arrangements to obtain a tax outcome that the government did not anticipate or plan. Taxation contributes significantly to national income, so it is critical to examine the impact of management incentives and foreign ownership on tax avoidance in Indonesian conventional banks listed on the Indonesia Stock Exchange (IDX) from 2015 to 2020. The study focused on banks with foreign ownership that did not experience losses during the study period. After analysing the data with the Eviews 12 programme, it was found that foreign ownership had a negative impact on tax avoidance, although management incentives had a positive result. Furthermore, credit ratings had significant interactions with foreign ownership and management incentives for tax avoidance. Keywords: tax avoidance, foreign ownership, management incentives, credit rating.

The Role of North Sumatra MUI Through Empowerment Waqf Al Nuqud in Increasing Micro, Small and Medium Enterprises in North Sumatra

Micro, Small and Medium Enterprises (MSMEs) are one of the economic units that play an important role in the Indonesian economy. In the process of developing this business, each MSME experienced many obstacles that hindered their production, including the difficulty of obtaining capital loans from conventional BANK. Therefore the MUI of North Sumatra as a government institution which is also the pioneer or manager of Waqf al Nuqud should make this issue a reference for determining optimal programs, especially in managing Waqf al Nuqud, so that the resulting output can touch and help MSMEs in Sumatra. North. The research method used is to use qualitative methods (qualitative research). The purpose of this study was to find out the role of the North Sumatra MUI in improving micro, small and medium enterprises through the empowerment of Waqf al Nuqud. Through the results of the researcher's analysis of the role of the North Sumatra MUI in improving MSMEs through empowering waqf al nuqud, namely 1) Forming a P2WP institution (Center for Productive Waqf Development), with the aim that the management of Waqf al Nuqud can be carried out in a structured way and an institution that is consistent in dealing with these issues, 2 ) Managing Waqaf al Nuqud in the form of Epowerment, including providing capital loans to MSMEs, establishing halalmarts and providing guidance in the form of business management workshops to MSMEs who have been given capital loans.