Efficiency Of Financial Intermediation Research Articles

Bank intermediation efficiency and liquidity risk in Egypt: a two-stage non-parametric analyses

This is a pioneering study that undertakes a comparative analysis assessing the annual intermediation efficiency of public versus private banks in Egypt. Moreover, liquidity risk is a major threat facing banks in their efforts to sustain financial stability. Thus, this study is the first to model the determinants of liquidity risk in public and private banks in Egypt while examining the impact of banks’ intermediation efficiencies on their liquidity risk levels. The study employs advanced nonparametric econometric approaches on a sample of Egyptian public and private banks from 2014 to 2022. The data envelopment analysis is used in estimating banks’ intermediation efficiency scores, while the quantile regression analysis is applied to examine the impact of bank intermediation efficiency on liquidity risk under different liquidity risk quantiles. The findings indicate that public banks show consistent superiority in terms of their financial intermediation efficiency levels compared to private banks. Moreover, the paper findings demonstrate the negative significant relationship between bank intermediation efficiency and liquidity risk while highlighting the higher significant positive impact of intermediation efficiency on reducing the liquidity risk of banks that are characterized by undertaking high liquidity risk levels. Furthermore, contrary to general assumptions, this study’s findings demonstrate that the significance of micro- and macro-level determinants of a bank’s liquidity risk is dependent on its prevailing liquidity risk level. Hence, the positive impact of equity capital, asset concentration, size, and growth in gross domestic product and the negative effect of asset quality on bank liquidity risk vary under banks’ different liquidity risk quantiles.

Financial System Development and Economic Growth: A Critical Analysis of the Literature

Any developing countries (DCs) want to achieve strong, sustained growth to ensure their sustainable development by 2030. Indeed, promoting economic growth is one of the targets of the majority of the Sustainable Development Goals (SDGs) set by United Nations member countries. In their agenda, financial system development cited as an effective means of enabling developing countries to achieve high rates economic growth. However, research into the relationship between finance and growth has produced controversial results, showing that financial development is not always conducive to economic growth. These non-consensual findings call for further research into the subject. With this in mind, the aim of this paper is to critically analyze the literature on the subject with reference to the characteristics of developing countries. We have used the stylistic facts observed in these countries to see whether the way in which studies are conducted is in line with reality. These facts revealed that, as conducted, theoretical and empirical work does not really illustrate the nature of this relationship in the case of developing countries. The authors do not take into account certain specificities of these countries. The studies focus mainly on the formal financial sector, whereas in developing countries, the majority of the population is unbanked, so they tend to turn to the informal financial sector for savings and credit. In Pagano's theoretical model, on which most empirical work is based, the efficiency of financial intermediation is assumed to be an exogenous variable. However, in developing countries, many factors influence this function: poor governance, prevailing corruption, inefficiency of the legal system, government intervention in the financial sector, culture of non-repayment. Banking sector development is generally captured by credit to the private sector. However, in developing countries, the majority of bank credit is allocated to large commercial enterprises that sell mainly imported products. The indicators generally used to capture financial markets development do not reflect the amount of financing actually obtained by listed companies. Rather, they measure the level of secondary market activity, whose mission is to ensure the liquidity of securities and determine their prices. Taking account of financial dualism and integrating factors linked to the institutional environment, borrower behavior and financial intermediaries into the resource allocation function would be a significant advance in the literature.

Xraying Economic and Financial Theories of Distribution of Banks’ Credits and Profitability of Banks

The paper reviewed Theoretical framework, neo-classical economics and modern finance theory: Commercial Loan Theory, Credit Risk Theory, Theory of Bank-Based Financial System, Debt intermediary hypothesis, Preference-Adverse Selection Theory, Financial Intermediation Theory, Supply leading theory, Loan Pricing Theory, Shiftability Theory Of Liquidity, Agency Theory, Theories of Economic Growth, Harrod–Domar Model, Solow–Swan Model, Theories of liquidity management, Liability/Liquidity Management Theory, Liquidity Preference Theory, theories of profitability, Profit Maximization Theory, Clark Theory of Profitability, Schumpeter Theory of Profitability, Income Theory of Money, Anticipated Income Theory, Portfolio Theory, Asset Liability Management Theory, Neo-Classical Theory of Interest Rate, Classical theory of political economy and development, Pecking Order Theory (POT)/Hypothesis Of Lending, Financial Repression Hypothesis, Asymmetric Information Theory, Pro-Concentration Theory, Trade-off Theory and Signaling Hypothesis as it relates with Banks’ credits, profitability of banks. Many economists have stressed that banks as a major component of financial system, provide linkages for the different sectors in order to ensure the attainment of the macroeconomic objective of government. A bank is a financial intermediary that accepts deposit from customers and channels the amount mobilized to borrowers in the form of loans and advances. Bank credits represent the amount of loan and advances to individuals and organizations from banking system. The likes of McKinnon (1973) and Shaw (1973) noted that the efficiency of financial intermediation is affected by regulatory regime at a point in time. Deregulation involves a regulatory framework that permits the development of competitive system where consumers are served at reasonable cost. In other words, it is believed that liberalization allows for a market driven intermediation which leads to competition

EFFECT OF CREATIVE ACCOUNTING PRACTICES ON CREDIT RISK MANAGEMENT OF SELECTED DEPOSIT MONEY BANKS QUOTED IN NIGERIA

Sound credit risk management is one of the criteria for deposit money banks to carry out efficient financial intermediation in developed, emerging and developing economies including Nigeria. However, the manipulation of bank financial data by fraud utilizing inventive accounting techniques led to the poor credit risk management and collapse of deposit money institutions in Nigeria. The objective of the study is to examine the effect of creative accounting practices (cash assets structure, equity capital structure, loan structure, deposit liability and accrual quality) on credit risk management of selected deposit money banks quoted in Nigeria. The population of the study comprised of all the nineteen (19) listed deposit money banks as at December, 2021 while a targeted random sampling technique was adopted to select the sample size of seven (10) failed banks and seven (7) surviving deposit money banks listed in Nigeria Stock Exchange (NGX). Ex post facto research design was adopted using dataset for the period 2006–2021 which were collated from the annual reports and financial statements of the listed deposit money banks. The data collected were analyzed using mean scores and Panel Regression Model method. The analysis revealed that for surviving banks, creative accounting had a significant influence on credit risk management (Adj.R2 = 0.182, Wald-Test= 4.44 :p < 0.05). Therefore, the study recommended that the management team of the banks should ensure that credit portfolio of the deposit money banks is prudently managed to grow year on year in the right mix and without contravening the statutory guidelines to avoid bad and doubtful loan classifications so as to achieve sound credit risk management.

Social Trust as a Monitoring Role: The Effect of Cultural Fractionalization on the Efficiency of Financial Intermediation

Social Trust as a Monitoring Role: The Effect of Cultural Fractionalization on the Efficiency of Financial Intermediation

Investment Management and Financial Intermediation Efficiency of Deposit Taking Saccos’s in Kenya

Purpose: The purpose of the study will be to examine the influence of investment management on financial intermediation efficiency of deposit taking Savings and Credit Cooperative Societies in Kenya.
 Methodology: This study adopted a descriptive survey research design. Target population of the study was 174 DT SACCOs which were in operations as December 2020. Census approach was used to select 174 DT SACCOs. The study relied on secondary data that was collected from annual financial statement of DT SACCOs. Data was analyzed using descriptive statistics (mean, standard deviation) and inferential statistics; regression analysis to examine the nature of the influence of investment management on financial intermediation efficiency.
 Results: Results indicate that 57.38% of changes in financial intermediation efficiency of DT SACCOs was contributed by investment requirements. Further, there was a positive and significant influence of investment requirement on financial intermediation of DT SACCOs in Kenya (β = 0.071, p value < 0.05). The findings further revealed that financial performance as measured by profit before tax over total assets is positively related to Liquidity. 
 Unique Contribution to Theory, Policy and Practices: There is need for management of DT SACCOs to enhance compliance with Investment managements policy guidelines and procedures. This would be achieved through management of working capital items such as management of cash balances. Dependent on investment policies in place DT SACCOs management may adopt investment models that would enable ease conversion of investment in non-tangible assets into cash.

INFLUENCE OF CREDIT MANAGEMENT ON FINANCIAL INTERMEDIATION EFFICIENCY OF DEPOSIT TAKING SACCOS’S IN KENYA

Purpose: The regulation of Deposit Taking Saving and Credit Co-operative societies was expected to enhance transparency and accountability in the management of DT SACCO’s and thus protecting the interests of members. This was expected to lead to better service to members through provision of timely loans and advances with minimal risk exposures. SACCO’s have been identified as major financial player away from the Commercial Banks thus important in financial intermediation. Thus, the current study on the influence of credit management on financial intermediation efficiency of DT SACCO’s in Kenya.
 Methodology: The study targeted 174 DT SACCO’s operating in Kenya as at 31st December 2019. Data analysis was done using both descriptive and inferential statistics. Descriptive statistics used in the study included measures of central tendency; mean; dispersion and standard deviation. Inferential statistics used included correlation and regression analysis.
 Results: The study findings showed that there was a persistent increase in financial intermediation efficiency within the period under study and thus can be concluded that as DT SACCOs complied with credit managementon their financial intermediation efficiency improved.
 Unique Contribution to Theory, Practice and Policy: Pure efficiency was lower than scale efficiency throughout the period under study, thus there is need for management to examine their performance inefficiencies so as to minimize wastages and spillage of performance opportunities.

Islamic Cooperative Societies and the Efficiency of Financial Intermediation in Ife East Local Government, Osun State, Nigeria

The study investigated the relationship between cooperative societies and financial intermediation efficiency in Ife east local government, Osun State, Nigeria. The broad objective of this study is to examine the extent at which cooperative societies in Ife East Local Government achieved their financial intermediation role. The specific objectives are to examine the relationship between the total deposit and total credit of Munislam Welfare Fund cooperative society and to investigate the relationship between the total deposit and the total credit of Al-Irshad welfare fund cooperative society.The study used regression analysis method to achieve the stated objective. The data for this study was obtained from the annual financial report of the selected cooperative societies in Ife East Local Government, Osun state, Nigeria. It was revealed in Credit supply equation I that there was a positive correlation and significant relationship between the total deposit and total credit of Munislam Welfare Fund cooperative society. It was also discovered in Credit supply equation II that there was a positive correlation and significant relationship between the total deposit and total credit of Al-Irshad welfare fund cooperative society. The study recommends that Cooperative Societies should foster a higher level of liquidity in order to increase its ability to grant loans and advances to their members for productive purpose. The study also recommends that Cooperative societies should effectively utilize mobilized deposit in order to ensure the efficiency of financial intermediation.

Financial intermediation and occupational choice

This paper explores how financial intermediation costs affect occupational choices, using a model with employers, own-account workers, and wage workers. An intermediation cost drives a wedge between the return on saving and the cost of borrowing that increases the cost of borrowing, reduces the return on saving, and depresses the wage rate. As a novel channel in this paper, a lower return on saving induces agents to seek self-employment to manage their wealth. Quantitatively, the observed variation in the intermediation cost explains about a quarter of cross-country differences in the share of own-account workers. In terms of policy implications, these findings suggest that governments should increase the efficiency of financial intermediation and provide households with better saving opportunities.

Social welfare and bank performance: evidence from a stochastic neural hybrid MCDM approach

PurposeThis paper investigates the endogenous relationships between banking performance and social welfare in Southern African Development Community (SADC) countries.Design/methodology/approachA comprehensive three-stage multi-criteria decision-making (MCDM) approach based on alternative informational assumptions is applied.FindingsResults indicate that banking performance is paradoxically associated with stagnant economic activity and higher wealth concentration for the minority. The authors found that SADC banking performance promotes higher Human Development Index (HDI) standards possibly via efficient financial intermediation, dissemination of best managerial practices and other forms of positive spillovers in these countries.Originality/valueThis paper contributes to the MCDM literature by simultaneously exploring the key concepts of “utility functions” (using COPRAS) and “distance to ideal solutions” (using TOPSIS) in mapping and explaining the feedback and cause-effect processes between banking performance and social welfare that may exist. Another distinctive aspect is related to the computation of bias-free criteria weights, using a robust SWARA order-rank based on information entropy. Finally, this paper is concerning the endogeneity measurement, using a novel stochastic structural relationship non-linear programme.

Financial Innovation and Efficiency of Financial Intermediation in Nigeria

This study investigated the effect of financial innovation on efficiency of financial intermediation of commercial banks in Nigerian between 2008 and 2018. The study used secondary data obtained from the Annual reports and Accounts of the Central Bank of Nigeria (CBN). The explanatory variables of the study are the product innovations in the banking sector namely: volume of automated teller machine transactions (ATM), volume of point-of-sale transactions (PoS), volume of Internet banking transactions (IBT) and volume of Mobile banking transactions (MBT). The dependent variable is the financial intermediation efficiency proxied by interest rate spread, which is measured by the difference between maximum lending rate and savings rate. A multiple regression model developed for the study was analysed with the help of Ordinary Least Square (OLS) regression technique. The result from the descriptive statistics indicated that financial intermediation in Nigeria is inefficient. The results showed that ATM, IBT and MBT have insignificant positive effects on financial intermediation while PoS has negative effects on financial intermediation efficiency. Further results indicated that the 57% change in financial intermediation efficiency explained by financial innovation is not statistically significant. The study therefore concluded that financial innovation in itself is not a determinant of the efficiency of the intermediation process in Nigeria. It is then recommended that the regulatory authority among others should make policies to increase the savings rate, so that the surplus unit will be encouraged to make their funds available to the banks for lending.

An econometric modelling of the savings – investments nexus for Ghana

Introduction. The problem under discussion is whether savings are associated with investments in the long-term and whether savings predict investment with feedback or not. Addressing the problem is important since it informs policy formulation in the financial sector in ensuring efficient financial intermediation. The purpose of the article is looks at the savings-investment relationship for Ghana during the period 1960 to 2016. Methodology. Utilizing ARDL (with bounds testing) approach, the Granger predictive test, the Generalised Impulse Response Function, and Variance decomposition function. Results. The results indicate that a 1% increase in savings, GDP and financial development would result in a 0.069%, 0.266% and 0.125% increase respectively in investment in the short-term. It is discovered that savings do not cause investment in the long-run but rather in the short-run. The Granger causality test establishes a unidirectional causality running from savings to investment in the short-run. Discussion and Conclusion. The ramifications of the finding are that there is capital fixed status globally. Future examinations ought to consider structural break(s) issues as well as panel analysis to determine if the findings of the current study would be reproduced.

The efficiency of financial intermediation and SMEs' cash holdings. Empirical evidence from emerging Europe

The efficiency of financial intermediation and SMEs' cash holdings. Empirical evidence from emerging Europe

Moderating Effect of Industry Concentration on the Effect of Camels Financial Indicators on Financial Performance of Deposit Money Banks in Nigeria

In Nigeria, the banking industry has witnessed many upheavals over the years, which led to the collapse of quite a number of banks. Despite several effort by government to reposition the industry to improve its efficiency and achieve overall stability of the financial system in view of its strategic importance to the country’s economy, the financial performance of banks seems to be dwindling. This study assessed the moderating effect of industry concentration on the effect of CAMELS financial indicators on financial performance of Deposit Money Banks (DMBs) in Nigeria using secondary data extracted from the financial statements of 15 out of 22 licensed banks over the period of nine years (2010-2018). The study formulated thirteen hypotheses and applied multiple regression technique to assess the causal relationship between the dependent variable, Return on Assets (ROA) and the independent variables, CAMELS, which as a set of financial indicators stands for capital adequacy, assets quality, management efficiency, earnings ability, liquidity and sensitivity to market risk. The study also analyzed the moderating effect of the interaction between industry concentration and each of the CAMELS variables on financial performance of the banks. After subjecting the data to relevant tests of robustness, the result of the clustered robust random effects regression revealed that overall, the interaction between industry concentration and CAMELS financial indicators has significant effect on financial performance of DMBs in Nigeria. In terms of specific variables, asset quality, management efficiency, liquidity and sensitivity to market risk have significant effect on financial performance. With respect to the interaction variables, the interaction between industry concentration and each of asset quality, management efficiency and earnings ability have statistically significant effect on financial performance. The study therefore concluded that overall, CAMELS financial indicators have significant effect on financial performance of DMBs in Nigeria and its effect is significantly moderated by industry concentration. Based on the results, the study recommended among other things that CBN should continue to promote and encourage industry concentration strategy in the banking sector through policies that will make banks put more effort in deposit mobilization, costs cutting and providing better and efficient financial intermediation services in order to make high profit. The CBN should also carry out its risk-based and risk assets on-site examination function at least twice in a year as against the current practice of once in a year in order to increase its surveillance on banks and ensure that imprudent and unethical behavior that erode the quality of assets and capital adequacy are spotted not only in the beginning or end of a financial year but also in the middle of the year. Furthermore, management of DMBs should look into the quality of their assets by coming up with lending policies and applying loan recovery strategies that will help in increasing performing loans and decreasing non-performing loans.

Nexus between financial innovation and economic growth in Lesotho: evidence from ARDL and nonlinear ARDL approaches

This paper sets out to explore the relationship between financial innovation and economic growth in Lesotho using time series data spanning 1980-2016. The autoregressive distributed lag (ARDL) bounds testing approach is applied to gauge long-run cointegration while the nonlinear ARDL (NARDL) model is used to test validity of short and long-run symmetric effects of financial innovation on economic growth. Results of the bounds tests revealed existence of long-run cointegration between financial innovation and economic growth in Lesotho. Positive changes in financial innovation related positively with economic growth in the long-run but had a statistically insignificant impact in the short-run. Furthermore, negative changes in financial innovation were found to have no significant impact on Lesotho's economic growth in the short and long-run. The Government of Lesotho is recommended to foster greater financial innovation in the financial system to assist financial services expansion and efficient financial intermediation to support sustainable economic growth.

Should VCs' Principals Specify Minimum Portfolio Returns to be Delivered by Venture Capitalists (VCs)?

This study finds specification of minimum portfolio returns to be delivered by VCs in contracts that subsist between VCs and their principals is not a necessary condition for incentivization of optimal portfolio performance. Within populations of VCs who are characterized by risk aversion, formal theoretical predictions show competition only serves for revelation of true ability of VCs, as such, in entirety is self serving. Within said population, efficiency of financial inter-mediation is endogenously induced by structure of investment opportunity set risk. Absent demonstrations of ability by risk seeking VCs, the continuum of investment opportunity set risk that is occupied by said VCs would be lacking in economic viability. We have then that within said continuum, demonstrations of ability on part of risk seeking VCs induce each of viability and efficiency of financial inter-mediation. While there exists some overlap region in interior of the continuum that is occupied by each of risk averse and risk seeking VCs, we arrive at clustering of risk averse or risk seeking VCs to the right, and to the left, respectively of the overlap region. Overlap is feasible, because the overlap region is, for each of risk averse or risk seeking VCs, the 'lowest portfolio return segment', and because VCs' principals assess each of risk averse or risk seeking VCs on basis of First-order Stochastic Dominance and skewness of project returns. In aggregate, the continuum of opportunity set risk consists of a 'native risk-return' segment populated by risk averse VCs, an 'ability-induced risk-return' segment populated by risk seeking VCs, and an overlap region in interior of the continuum. Absent any assumptions to the effect, the formal theoretical model generates heterogeneity of necessity of pay-performance sensitivities within venture capital markets. In presence of heterogeneity of pay-performance sensitivities, and feasibility of negotiation of higher 'carry' by reputable VCs, VCs which achieve superior performance rationally are able to transition to smaller fund sizes. Formal theoretical support for rationality of transitions to smaller fund sizes by superior performers within venture capital markets had hitherto been lacking in literature of finance.

Monetary Equilibrium and the Cost of Banking Activity

AbstractWe investigate the effects of banks' operating costs on allocations and welfare in a low interest rate environment. We introduce an explicit production function for banks in a microfounded model where banks employ labor resources, hired on a competitive market, to run their operations. In equilibrium, this generates a spread between interest rates on loans and deposits, which reflects the underlying monetary policy and the efficiency of financial intermediation. In a deflation or low‐inflation environment, equilibrium deposits yield zero returns. Hence, banks soak up labor resources to offer deposits that do not outperform idle balances, thus reducing aggregate efficiency.

Efficiency of trade credit and bank finance: an ethnic minority area in China

Using 1998–2008 firm-level microdata for industrial firms, we investigate the efficiency of financial intermediation through trade credit and bank loans in an ethnic minority area in China, the Xinjiang Uygur Autonomous Region. We find: (1) after receiving trade credit, ethnic minority firms tend not to repay it when they are financially distressed; (2) bank finance allocates more funds to more efficient ethnic minority firms while also allowing state-holding Han firms with worse performance levels to access bank loans; (3) efficient financial intermediation to ethnic minority firms is achieved through bank loans to relatively large firms.

Credit Misallocation and Economic Growth in Vietnam

The legacy of non-performing loans and high opportunity cost of government financing of bank recapitalization impeded the efficiency of financial intermediation and are an important policy issue in Vietnam. This paper presents a theoretical and empirical analysis of the issue. An empirical analysis using corporate data indicates credit misallocation between state owned enterprises and private firms in Vietnam. On the theoretical side, a micro-founded banking model is embedded in a political economy setting to assess the factors determining the size of bank recapitalization and its effects on the efficiency of financial intermediation, economic growth and welfare. The analysis suggests that recapitalization depends on an array of factors, including the tightness of the government budget and the decision maker’s concern for the favored sector.

DOES CAPITAL ADEQUACY INFLUENCE THE FINANCIAL PERFORMANCE OF LISTED BANKS IN NIGERIA?

Capital adequacy is important for the effective operation of any institution, particularly, its sustenance, viability and future growth. Banks as core financial institutions require sufficient capital base for its fund requirement and needs. Against this premise, banks and other financial institutions must keep balance between capital and available risk in its assets in order to reduce the likelihood of systemic crises, financial fragility and thus guarantee stability. This study empirically examines the impact of capital adequacy on the financial performance of banks in Nigeria. A sample of ten (10) listed banks on the basis of size and availability of data were examined over the period 2010 to 2017, using descriptive statistics, and multivariate panel data estimation technique, after conducting the Hausman, test of correlated random samples, wherein the fixed effect model was selected as the appropriate model. The empirical results revealed that banks’ capital adequacy ratio has a positive and significant impact on the financial performance of banks in Nigeria. Other variables found to be significant in the determination of the financial performance of banks in Nigeria are; bank size, bank loans and advances, debt ratio and growth rate of output. Against the backdrop of these findings, we recommend amongst others; sufficient capital base for banks, increased bank size through economies of scale measures, efficient deployment of bank resources, increased economic output (economic productive capacity) that will stimulate bank performance. These, will, in no doubt, reduce banks’ vulnerability to systemic crises and consequently enhance their stability for national growth through efficient financial intermediation.