Domestic Banks Research Articles

Ensuring competitiveness in the XXI century: use of management tools in the internet-economy (on the example of banks)

The formation of the Internet economy places special demands on the development of a system of organisational influences used to solve problems of adaptation to changes in the external environment and internal integration. At the same time, the effectiveness of the updated combination of management tools should be sufficient to ensure competitiveness during the implementation of the strategic process. The relevance of studying and systematising the practices used by the subjects of the digital economy is justified by the transformational processes of the information society, representing both scientific and practical interest. Consideration of the works of leading Russian and foreign scientists specialising in the development of the Internet economy through the use of the management tools as well as the results of the People’s rating of customer service by domestic banks allows us to draw conclusions about the need to introduce special approaches to respond to the challenges the threats of the latest strategic context. In addition, they should be combined considering the results of the analysis and systematisation of this study. The article concludes with brief findings on the results of the research, emphasising the importance of continuing to study examples of ensuring the competitiveness by Russian companies in the XXI century: identifying industry features may be of interest for replicating best practices in the Internet economy.

Procyclicality of Korean Domestic Bank Lending and Macro-prudential Policies

Procyclicality of Korean Domestic Bank Lending and Macro-prudential Policies

PROFIT FORMATION OF BANKING INSTITUTIONS IN UKRAINE: MODERN REALITIES

In the article examines the theoretical and practical aspects of profit formation of banking institutions in Ukraine in the pre-war period and at the present stage. Approaches to determining the bank's profit are considered and its importance for the state, the banking institution and its employees is highlighted. It was found that the effective functioning of domestic banks will contribute to the stabilization of the economy of our country as a whole, and therefore, ensuring the financial stability of banks is of national importance. The system of forming a positive financial result and its quality management is the duty and main task of every banking institution today and requires constant analysis. The ability to accurately estimate and effectively manage the bank's cash flows allows you to receive planned benefits from the implementation of activities both in the interests of the bank and in the interests of its clients. In the article analyzes the consequences of the functioning of the domestic banking business in conditions of constant crisis situations, highlights the influencing factors on changes in banking income and expenses. Despite the decrease in the number of banks by more than half, the income of banks over the last ten years has increased by almost half due to the growth of interest and commission income. A forecast was made regarding the future growth of banking income. It was established that the main reason for the increase in the profitability of the banking system in the pre-war period and the record profit in the second year after the beginning of the full-scale invasion of the russian federation was the increase in interest income from highly liquid assets and lending. The paper evaluates the effectiveness of banking business in wartime conditions and makes a forecast of financial results and profitability of capital and assets of domestic banking institutions for the nearest future. The increase in profitability indicators showed a general improvement in the financial stability of the banking system. Despite the deterioration of the general economic situation in the country, the situation on the market of banking services remains favorable.

Role of Globalization and Innovation Pattern in Growth of Bank Credit: Evidence From Emerging and Advanced Asia

ABSTRACTThis study examines the role of globalization and innovation pattern (i.e., innovation by the residents and non‐residents) in the growth of domestic bank credit across emerging and advanced Asian economies spanning from 1996 to 2022. The bank credit growth model includes economic growth and real interest rate as important control variables. This study employs Cross Sectional‐Autoregressive Distributed Lag (CS‐ARDL) as an appropriate baseline method because of the cointegration, endogeneity, and cross‐sectional dependency present in the data. The long‐run results for emerging Asian economies indicate that globalization exhibits a negative impact on banking credit, contrasting with the positive influence observed in advanced Asian economies due to heightened economic growth and increased credit demand. Residential innovation consistently bolsters banking credit in both sets of economies, albeit with mixed effects stemming from non‐resident innovation. The long‐run results further indicate the positive (negative) impact of economic growth (real interest rate) on bank credit in emerging and advanced Asian economies. These findings are reliable due to the similar results obtained from using Driscoll‐Kraay Robust Standard Errors (DKSEs) as robust method. For policymakers in emerging economies, the imperative policy lies in striking a delicate balance between economic openness and bank credit, while counterparts in advanced economies are poised to bolster bank credit accessibility through foreign innovation while upholding stringent regulatory oversight.

Basel III as a regulatory framework for risk management

The stability of the economic system, which directly depends on the reliability of the country's financial sector, is crucial for growth and development. Therefore, effective risk management is of paramount importance for both banks and other financial institutions. In a turbulent and unpredictable business environment, banks are constantly exposed to risks. For this reason, it is necessary to continuously improve control systems. Basel III refers to a set of global regulatory standards for banks, introduced in 2010 by the Basel Committee on Banking Supervision (BCBS). The aim of the defined standards is to ensure the resilience and stability of banks and prevent financial shocks. On the other hand, this new regulatory framework imposes stricter criteria on commercial banks, which affects credit policy. In addition to a theoretical overview of the new regulatory framework, the paper analyzes the indicators of capital adequacy and the impact of changes in the macroeconomic environment on the exposure of domestic banks to liquidity risk.

The Impact of Foreign Bank Entry on the Efficiency and Sustainability of Domestic Banks in Developing Countries: A Meta-Frontier Approach

The Impact of Foreign Bank Entry on the Efficiency and Sustainability of Domestic Banks in Developing Countries: A Meta-Frontier Approach

PENGARUH FAKTOR INTERNAL TERHADAP PROFITABILITAS BANK UMUM SYARIAH PERIODE 2018-2022 DENGAN FAKTOR EKSTERNAL SEBAGAI VARIABEL KONTROL

Although Islamic Banking has shown its performance as a solution-oriented bank, the Islamic banking sector still has difficulties in maintaining the stability of its profitability. In fact, to carry out its operations, banks must have high profits and when the Islamic banking sector is strong, it is very important for financial inclusion and stability of the domestic banking system. Having profitability above the minimum limit set by Bank Indonesia is the key to achieving positive banking performance. This study aims to investigate the determinants of profitability in the Islamic banking industry in Indonesia, using panel data from Sharia Commercial Banks in the period 2018 to 2022. The authors used panel data regression analysis to test the influence of CAR, NPF, FDR, and BOPO on Profitability represented by Return on Assets (ROA). Interestingly, of the four hypotheses formed, only the BOPO variable has a significant effect on profitability (ROA). This result is useful to help banking stakeholders in knowing the factors to maximize their profitability, then it is also used for government stakeholders such as the Otoritas Jasa Keuangan (OJK) and Bank Indonesia (BI) in evaluating the financial performance of Islamic banking.

How Does Financial Development Affect the Volume of Nuclear Energy? Assessing The Relationship Between Nuclear Energy and Finance

The main objective of this study is to reveal the relationship between the volume of nuclear energy, which is becoming increasingly important as a clean energy source in today's world where the effects of environmental pollution are widely discussed, and financial indicators within the framework of nuclear energy producing countries. The study analyzes the relationship between the variables of domestic bank credit to the private sector (per capita) and gross capital formation (per capita) and the volume of nuclear energy per capita for the period 1970-2022. In the study, the panel cointegration test developed by Olayeni et al. (2020) was used to determine the long-run relationship between the variables. In addition, the coefficients were calculated using the cointegration estimator proposed by Bai (2009). According to the results of panel Fourier cointegration test, cointegration relationship is detected in all panel countries according to both PP and GLS values. According to the results of panel cointegration coefficient estimates, the CRD variable has a negative effect on the NUC variable, and the CAP variable has a positive and statistically significant effect. To the best of our knowledge, there is no study in the literature that examines the relationship between the per capita amount of bank loans to the private sector, the per capita amount of gross capital, and nuclear energy to understand the dynamics and impact of the financial and energy sectors on environmental and economic sustainability. It is thought that the study will make an important contribution to the related literature in this respect.

PROVISION OF BANKING SERVICES IN THE CONTEXT OF THE SUSTAINABILITY OF THE BANKING SYSTEM: CURRENT TRENDS AND DEVELOPMENT DIRECTIONS

The article examines banking services in the context of the stability of the banking system: current trends and directions of development. The current stage of development of the global banking system operates under conditions of intensified competition and crisis phenomena in financial markets. One of the main factors in the successful development of the domestic banking system is the policy of constant innovations.Currently, innovation is a key factor in the stability, competitiveness and sustainable economic growth of domestic banks. The sustainable development of the national economy is accompanied by an increase in the volume of financial transactions and an increase in the importance of the domestic banking sector. The banking system, being one of the most important links of the market economy, affects the life of society in many ways. It not only provides a mechanism for interregional redistribution of monetary capital, but is also a key element of the settlement and payment mechanisms of the country's economic system. This fact determines the importance of the banking sector in the socio-economic development of the state.The current realities of the banking business contribute to the identification of the main catalysts of domestic banking innovation activity: globalization of world financial markets and markets of banking services; growing competition from the banking and non-banking sectors; the world financial crisis. The above-mentioned factors significantly affect the qualitative and quantitative composition of banking institutions and their services and lead to key changes in consumer behavior, thus leaving banks with the only opportunity to preserve and increase their competitive advantages through the introduction of innovations, the direction of which determines the strategy for the development of the banking sector on medium-term perspective. Based on the results of the research, it was established that the problems accumulated in the national banking system can be solved by applying the experience of Great Britain, and the main postulates should be adapted to the national banking system, which will contribute to the development of the domestic market of banking services and increase the stability of the national banking system.

The Influence of Domestic Bank Credit and FDI Inflows on Renewable Energy Productivity: An Analysis of Developing Asian Economies

The Influence of Domestic Bank Credit and FDI Inflows on Renewable Energy Productivity: An Analysis of Developing Asian Economies

Banks’ portfolio of government debt and sovereign risk: From safe havens to stormy seas

We analyse domestic, foreign, and central banks holdings of public debt for 31 countries for the period of 1989–2022, applying panel regressions and quantile analysis. We conclude that contrarily to what we observe before 2010, we found that after 2010 an increase in sovereign risk raises the share of domestic banks’ portfolio of public debt and reduces the percentage holdings in the case of central banks. Better sovereign rations also increase (decrease) the share of commercial (central) banks holdings. Furthermore, the effects of an increment in the risk for domestic investors have increased since the 2010 financial crisis.11We thank the Editor and two anonymous referees for the useful comments. We thank João Santos Silva for clarifications on the Stata quantile procedure. This work was supported by the FCT (Fundação para a Ciência e a Tecnologia) [grant number UIDB/05069/2020]. The opinions expressed herein are those of the authors and do not necessarily reflect those of the authors’ employers. Any remaining errors are the authors’ sole responsibility.

The bright side of the doom loop: Banks’ sovereign exposure and default incentives

The feedback loop between sovereign and financial sector insolvency, termed the “doom loop”, was a key driver of the European debt crisis and motivated an array of policy proposals. This paper revisits the “doom loop” focusing on governments’ incentives to default. We introduce a 3-period model with strategic sovereign default, where debt is held by both domestic banks and foreign investors. The government maximizes domestic welfare; thus, the temptation to default increases with externally-held debt. Importantly, the cost of default arises endogenously from the damage that default causes to domestic banks’ balance sheets. Domestically-held debt thus serves as a commitment device for the government. We show that two prominent policy prescriptions – lower exposure of domestic banks to domestic sovereign debt or a commitment not to bailout banks – can backfire, since default incentives depend not only on the quantity of debt, but also on who holds it. Conversely, allowing domestic banks to buy additional domestic sovereign debt during times of sovereign distress can avert the doom loop. In the context of a monetary union similar unintended negative consequences may arise from a backstop by the central bank (e.g., the ECB’s Transmission Protection Instrument) if imprecisely calibrated or the pooling of debt (e.g., European safe bond, also known as ESBies).

THE INTRODUCTION OF INNOVATIVE TECHNOLOGIES IN THE ACTIVITIES OF MODERN BANKS

Currently, traditional creative financial solutions are undergoing significant transformations, giving rise to new services designed for end users. Although the banking sector remains the main advanced segment for new technological solutions in the global financial market, it faces competition from emerging fintech companies. The integration of high-tech solutions enables banks to enhance the competitiveness of their offerings and redefine how these products are developed and distributed. A critical factor in boosting a bank’s competitiveness through innovative products is the rapid development and market introduction of these innovations, as this quick turnaround directly impacts the speed at which competitive advantages are gained. People’s need for banking solutions, namely products or services, directly creates a vector of further development, the very format of these solutions. The most important thing is the bank’s focus on the wishes of its direct customers In this important sector, it is possible to get ahead only thanks to such characteristics as cost optimization, assortment revision and, a specific customer base. Of course, we must take into account international trends, the integration of such new products is the main issue on the agenda. Thus, the introduction of innovative technologies into the work of domestic banks helps to increase their competitiveness. The objective of this study is to develop both theoretical and practical frameworks for assessing the impact of cutting-edge financial technologies on the evolving landscape of the banking system. Keywords: digitalization, Internet banking, mobile banking, banking credit technologies, digital money.

RISKS OF INVESTMENT PORTFOLIO OF BANKS OF KAZAKHSTAN: PROBLEMS AND WAYS TO SOLUTION

The article examines the essence and classification of the definition of «market risk». It is noted that managing market risks in a bank is a complex and multifaceted process that requires constant analysis and monitoring of market conditions, and an important element of the market risk management system is the formation of an effective investment portfolio, which includes various assets with different levels of risk. This will allow you to control and minimize possible losses, and will also help the bank determine the optimal balance between risk and profitability, which will help increase its profits. Using modern data analysis methods, an analysis of the real average investment portfolio of second-tier domestic banks was carried out and an assessment of the generated conditional investment portfolio was given. Based on the study, problems were identified and directions for improving market risk management in the bank were given.

АНАЛІЗ ДІЯЛЬНОСТІ БАНКІВ НА ФІНАНСОВОМУ РИНКУ УКРАЇНИ

The article analyzes the activity of domestic banks in Ukraine's financial market and examines the state and dynamics of the banking system's assets, capital, and liabilities for 2020-2023. Ukraine's financial market is experiencing significant challenges due to martial law, but these hard conditions also driving radical change and innovation in the sector. Due to the specificity of their activity, banks occupy a special place in the market economy and have a significant impact on the development of the financial market and the economy of the country. The integration of the national banking system into the world financial space is one of the leading directions of economic globalization, which strengthens the requirements for domestic banking institutions to increase their competitiveness and efficiency in providing financial services. This makes it necessary to study the essence and peculiarities of the functioning of banking institutions in the financial market of Ukraine in the modern, changing conditions of the development of economic relations between subjects of the national and international economy. The trend of consolidation of the banking system and withdrawal from the market of unreliable banks or banks whose capital belongs to under-sanctioned owners has been revealed. It was determined that despite the decrease in the number of these institutions, there was no significant deterioration of the main quantitative and qualitative indicators of the bank's activity, which indicates the stability of the efficiency of their activity. The state, dynamics, and quality of the banking system's credit portfolio were studied, and banks' compliance with NBU prudential regulations regarding credit risk was analyzed. The consistently high value of 45% of the share of bank assets in GDP confirms the overall efficiency of these financial institutions. A positive thing is the reduction of NPL before the full-scale invasion, but with its onset, this indicator increased again. A characteristic feature of the activity of domestic banks at present is a significant increase in the interest of institutions in investments in securities, in particular, military government bonds, the share of investments in these securities in the total assets of banks is rapidly increasing. To stabilize the financial state of the country's economy under the influence of "force majeure" circumstances, the banking system must constantly adapt its activities on the financial market, acting as an intermediary in the circulation of capital and financial resources

Does ICT Investment Affect Market Share and Customer Acquisition Cost? A Comparative Analysis of Domestic and Foreign Banks Operating in India

Competitive banks aggressively invest in information and communication technologies (ICT) to enhance their market share and reduce Customer Acquisition Costs (CAC). This study examines the impact of cumulative stock of ICT investment on (a) deposit and loan market share and (b) CAC of banks operating in India. The analysis uses a longitudinal dataset of 84 domestic and 70 foreign banks from 2000 to 2020, employing a two-step system Generalized Method of Moment (GMM). It is found that ICT investment adversely affects the market share of domestic banks, indicating a need for these banks to strategically invest more in CAC. Conversely, foreign banks are able to increase their market share through ICT investment and reduced CAC, thereby demonstrating greater efficiency in utilizing ICT. The study underscores the strategic importance of cumulative stock of ICT investment for banks. Nonetheless, it is emphasized that ICT investment must be complemented with innovative marketing strategies to enhance customer experience, reduce CAC, and increase market share. Overall, while foreign banks are able to leverage ICT to boost efficiency, domestic banks must leverage ICT to implement targeted marketing strategies and strive to enhance their customer service.

Does Bank Monitoring Reduce Corporate Misreporting? Evidence from Foreign Bank Entry in China

We propose a model of bank monitoring and borrower financial misreporting. Using the staggered liberalization of the banking sector in China as a natural experiment, we find that, consistent with the model’s prediction, entry by more efficient foreign banks reduces corporate misreporting fraud. Fraud reduction is greatest among borrowers of foreign banks, but fraud also drops among borrowers of domestic banks, suggesting a spillover effect. As predicted by the model, fraud reduction is greatest for borrowers with higher levels of fixed assets or lower levels of current assets. Our evidence suggests that improved bank monitoring reduces financial misreporting. This paper was accepted by Tomasz Piskorski, finance. Funding: M. Li acknowledges support from the National Science Foundation of China [Project 71402078] and the Social Science Foundation of Tsinghua University [Project 2013WKZD004]. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2022.02414 .

Risk Assessment of Banks and Financial Institutions in China

In the aftermath of the COVID-19 pandemic, economic development has emerged as a paramount concern globally. Governments, including that of China, have implemented various policies to reignite growth. However, this pursuit of rapid expansion brings with it inherent risks. This study conducts a comprehensive analysis of the risks facing China's domestic banks and financial institutions. It systematically identifies the factors contributing to their vulnerabilities, highlighting the complexities of the economic landscape. The research reveals that external economic conditions, lingering effects of the pandemic, and internal factors such as banks' understanding gaps collectively drive these risks. By illuminating these dynamics, the study aims to enhance understanding of the challenges confronting financial entities. It seeks to provide valuable insights for the comprehensive evaluation of China's domestic financial landscape in the future. Understanding these risks is crucial for policymakers, regulators, and stakeholders in crafting effective strategies to navigate the evolving economic environment. Ultimately, this analysis contributes to a more informed approach towards bolstering the resilience of China's banking and financial sectors amidst ongoing uncertainties.

Disentangling the impact of foreign bank presence on domestic banks performance: Does the degree of foreign ownership in domestic banks matter?

While extant studies typically measure foreign bank presence only considering the percentage share of foreign-owned banks among the banking industry of one country, there comes one interesting question: whether the impact of the micro-level foreign presence, i.e. foreign investment in domestic banks, may be similar? Drawing on theoretical arguments from FDI spillover and corporate governance, this paper hypothesizes that macro-level foreign bank presence mainly threatens domestic banks’ performance due to increased competition, whereas micro-level foreign presence enhances banks’ efficiency. Empirical analyses based on a cross-country bank-level dataset from 2002 to 2020 support these hypotheses. The mechanism analysis shows that macro-level foreign presence hampers domestic banks’ outputs, while micro-level foreign presence helps reduce banks’ input prices. Furthermore, the impact of macro-level foreign presence is more pronounced in less developed economies, while the positive impact of micro-level foreign presence is significant in more developed economies or those with low banking concentration. Our findings enrich the literature on foreign bank presence by considering micro-level foreign investment in domestic banks, and expand the FDI and corporate governance literature by incorporating the banking context.

Understanding the heterogeneity of interest rate adjustments to monetary policy: Evidence for Colombia

A fundamental problem in macroeconomics is understanding how changes made by a country's central bank to its interest rate affect the rates that people and businesses actually experience. In this study, we used Colombian bank-level interest rate data from loans and deposits between 2010 and 2019 to assemble panel data of 35,000 observations to analyze how banks adjust their rates when the central bank changes its rate. We applied a model based on industrial organization theory to estimate each bank's strategic complementarity, a measure of the bank's market power. We found that banks tend to split their rate adjustments into one that directly responds to the central bank's changes and another that responds to how rival banks react. The rates offered by banks for deposits adjust less steeply than those applied to loans. These rates vary heterogeneously depending on the bank's characteristics, with large domestic banks showing the most significant strategic complementarity and small or foreign banks showing the least. Our results showed that bank margins (profits) increase by 0.2% for every 1% increase in the policy rate.