Bank Equity Research Articles

The Influence of Financial Restructuring on Organizational Performance at Equity Bank Kenya Limited

The Influence of Financial Restructuring on Organizational Performance at Equity Bank Kenya Limited

Influence of Performance Appraisal on Employee Retention at Equity Bank's Head Office in Nairobi, Kenya

The study sought to evaluate the influence of performance appraisal on employee retention at Equity Bank's head office in Kenya. In this study, vroom expectancy theory, goal-setting theory and equity theory were adopted to underpin the relationship between study variables. A descriptive research type was adopted. The research was carried out at Equity Bank's head office in Nairobi. The target population was the 306 staff attached to Equity Bank's head office in Nairobi, Kenya. The study adopted a formula suggested by YaroYarmjne to determine the sample size comprising 173 employees. Questionnaires were adopted to collect primary data. The questionnaires were coded, and the data was entered into SPSS for further analysis. The study first did a descriptive statistics analysis using tools such as mean, standard deviation, frequency distribution and percentages where necessary. The study then carried out an inferential analysis comprising bivariate pairwise correlation and multivariate OLS regression. Based on regression analysis, target setting, performance measurement, appraisal feedback, and the utilization of appraisal reports had a significant influence on employee retention at Equity Bank. The study recommends that the management of Equity Bank improves performance appraisal by enhancing target setting, putting in place adequate tools for measuring performance level, improving its appraisal feedback loop and improving the utilization of appraisal reports to enhance employee retention.

Nonlinear and threshold effect of corporate social responsibility on bank performance

ABSTRACT This study examines the non-linear and threshold effects of corporate social responsibility (CSR) on bank performance. For empirical analysis, this study has used data from 30 Bangladeshi and 26 Indian banks from 2015 to 2021. The non-linear dynamic GMM and panel VAR model results suggest a U-shaped relationship. The threshold regression suggests that there is tipping point for earning to earnings assets, Tobin’s-Q, and return on equity for Bangladeshi and Indian banks. Additionally, this study shows the negative (positive) relationship exists between CSR expenditure and bank performance before (after) the tipping point. Findings reveal that lower CSR does not have any marginal benefit but rather increase cost, and optimal CSR increase the bank's performance. Therefore, policymakers and bank management should invest considering the threshold level to get a positive outcome from CSR.

Assessing Islamic Banking Equity: A Synthesis of Financial Ratios and Economic Conditions

The success of companies in the banking sector is necessary for driving economic growth and state revenues. Their success is usually measured using their share prices which is a good index of their overall value. The objectives of this paper were to analyse the relationship between independent variables and share prices of Islamic Banking companies. The independent variables are the following financial ratios for indicators Return on Assets, Return on Equity, Debt to Equity Ratio, Debt to Asset Ratio, Inflation, interest rates and exchange rates. The study made use of the random effects data model to analyse the various Islamic Banking firms that are listed capital market, using data from 2020 to 2023. The results from the study were that Return on Assets, Return on Equity, Debt to Equity Ratio and Debt to Asset Ratio had a statistically significant impact on the share prices of the Islamic Banking Companies. However, Inflation, Interest, and exchange rates did not have a statistically significant effect on stock prices. The results of this analysis will be useful for stakeholders in the Islamic banking sector as they know the most critical factors in determining the market’s valuation of a companies performance and results to help guide strategies for the future.

Revisiting the estimation of the cost of equity of euro area banks

El objetivo de este artículo es estimar el coste de capital de una amplia muestra de entidades de crédito del área del euro. Con este fin, los autores consideran varias metodologías de estimación bajo dos enfoques principales: i) modelos de series temporales multifactoriales de rendimientos bursátiles, y ii) modelos de descuento de dividendos. Se observa que, a escala nacional, las estimaciones de los distintos modelos muestran una variación temporal similar, pero las diferencias en niveles pueden ser considerables. La relación entre las distintas estimaciones de coste de capital y los observables bancarios es relativamente débil. Las estimaciones de los modelos de descuento de dividendos muestran una relación algo más sólida con los fundamentos bancarios, mientras que las de los modelos de factores lo hacen más claramente solo para las entidades de mayor tamaño. Una medida combinada, construida como un promedio simple entre modelos, también muestra una asociación moderada con los fundamentos. En general, los resultados destacan las incertidumbres inherentes a la estimación del coste del capital y la importancia de considerar diferentes modelos alternativos.

Revisiting the estimation of the cost of equity of euro area banks

The aim of this article is to estimate the cost of equity for a large sample of euro area banks. To this end, the authors consider several estimation methodologies falling under two main approaches: (i) multi-factor time-series models of stock market returns; and (ii) dividend discount models. It is found that, at country level, the estimates of the various models display a similar time variation, but differences in levels can be substantial. The relationship between the different cost of equity estimates and bank observables is relatively weak. Estimates from dividend discount models show a somewhat more robust relationship with bank fundamentals, while those from factor models do so more clearly only for larger banks. A combined measure built as a simple average across models also shows a moderate association with fundamentals. Overall, the results highlight the uncertainties inherent in cost of equity estimation and the importance of considering different alternative models.

A Case Study of Bank Equity Valuation Methods Employed by South African, Nigerian and Kenyan Equity Researchers

The valuation of banks is inherently complicated because of the uncertainties arising from their information opaqueness and inherent risks. Unlike non-banking firms, banks require specialised equity-side valuation approaches. This study addresses a gap in the literature by examining valuation methods used by bank equity researchers. The study used a total of 201 reports on South African banks (2018–2023), 56 reports on Nigerian banks (2018–2023), and 27 reports on Kenyan banks (2018–2023) to investigate the bank equity valuation methods utilised by analysts in the employ of Investec Ltd. and Standard Bank Group Ltd. The study’s findings show that Investec’s South African analysts predominantly used the warranted equity method, based on book value (BV), and return on equity (ROE), for valuing shares throughout the South African, Nigerian, and Kenyan banks surveyed. Furthermore, Standard Bank Group’s analysts employed this method, incorporating tangible net asset value (tNAV) and return on tangible equity (ROTE), for South African and Nigerian banks, but in Kenya their analysts used the residual income model to value the equities of the five Kenyan banks they covered. These findings suggest that the warranted equity method and the residual income model are the mostly used bank equity valuation methods in South Africa, Nigeria, and Kenya. The study concludes with relevant recommendations, offering significant insights for banks, regulators, and investors to make knowledgeable decisions concerning equity valuation.

Effect of Capital Structure on Financial Performance of Selected Commercial Banks in Rwanda: A Case of Bank of Kigali, Equity Bank and I&M Bank

Effect of Capital Structure on Financial Performance of Selected Commercial Banks in Rwanda: A Case of Bank of Kigali, Equity Bank and I&M Bank

Deciphering the black-box of monetary policy transmission in South Asia

Purpose ─ This study aims to identify the role of the bank capital channel by investigating how monetary policy affects bank lending through its influence on bank equity capital, in the transmission of monetary policy.Method ─ The study employs panel vector autoregression (pVAR) to investigate the complex relationship between monetary policy shocks, bank capital, and lending behavior. Results ─ The main findings are as follows: 1) The study finds evidence of both the bank lending and bank capital channels in South Asia. The analysis reveals a Granger causality between changes in bank capital position and policy rate adjustments, indicating a dynamic interplay between these variables. 2) The findings suggest, although direct effects of capital position changes on bank lending appear negligible, a nuanced examination uncovers the moderating influence of capital position changes on the impact of policy rate fluctuations on lending behavior. 3) The study suggests that healthier banking systems weaken the bank lending channel in South Asia.Implications/Significance ─ The study is significant because it sheds light on the mechanism involved in the interplay between monetary policy, bank capital, and lending, providing valuable insights for policymakers and future research directions.

Determinant of Probability of Indian Listed Commercial Bank

This study investigates the determinants of profitability among commercial banks in India over the period from 1999 to 2022, utilizing unbalanced panel data comprising 108 banks. By examining both internal bank-specific characteristics and external macroeconomic factors, we assess how these variables impact profitability across different types of banks. Our findings suggest that liquidity conditions, as measured by the loan-to-asset ratio, do not significantly affect profitability. However, credit risk, represented by the ratio of loan loss provisions to total loans, demonstrates a positive relationship with profitability for foreign and private banks. Diversification has conflicting effects on profitability, with SBI & Associates banks and public banks benefiting from it, while new private banks experience negative impacts. The influence of overhead costs on profitability varies across bank types, positively impacting return on equity for all banks and foreign banks, but negatively affecting return on equity for public banks. Conversely, it positively impacts return on assets for all banks but negatively impacts return on assets for private banks. Capital strength exhibits a negative association with profitability across all banks and a positive association for public banks, with inconclusive results for private banks. Bank size does not show a significant relationship with profitability across all bank types. Regarding macroeconomic factors, while indicators like money supply growth and inflation do not significantly impact return on equity, they positively influence return on assets, albeit with variations across ownership types. In conclusion, this study highlights the complexity of factors influencing bank profitability in India and underscores the importance of tailored management strategies to navigate these complexities effectively.

Comparative Analysis of Financial Statement in Selected Banks: A Case Study in the Context of Nepal

The main objective of the study is to assess and compare the financial statement analysis of Machhapuchchhre Bank Limited (MBL) and Kumari Bank Limited (KBL). This research used a quantitative research technique. Secondary data were adopted over the latest 7 years from 2072/73 BC to 2078/79 BC. As of today, there are 20 commercial banks, among them MBL and KBL were taken as sample units applying the purposive sampling method. Ratio analysis, Mean (X̄) Standard Deviation (SD), and coefficient of variation (CV) were applied for the analysis of data. Both the banks have the current assets more than two times or 200% of the current liabilities. It is found that both banks can repay their short-term obligation. The standard measure of quick ratios was not met by both banks. It is found that both banks have no capacity to pay current obligations immediately. The average Return on Asset (ROA) of the selected banks appeared to be lower ratios. It can be found that the available assets are not managed efficiently. The financial statement analysis in terms of Return on Equity (ROE) of the sample banks was found efficient. It is found that management is efficient in maximization of shareholder’s equity. It is concluded that sample banks have a strong liquidity position in terms of the current ratio, but a poor position in terms of quick ratio. ROAs of the banks appeared to be unsatisfactory whereas ROEs remained to be reasonable.

Bank equity returns and oil prices: The story from U.S. regional banks during the “shale oil” revolution

Using monthly data from 1998 to 2020, we examine the relationship between equity returns and oil prices employing a multi-factor asset model to a sample of 124 U.S. regional banks classified by levels of oil exposure based on their headquarters’ location. We utilize the period when fundamental changes in innovation undertaken by the U.S. oil and gas industry (known as “shale”, “fracking” or “tight oil” formations) helped the U.S. to become today’s top world oil producer. We split our sample into pre (1998M1 to 2009 M12) and post (2010M1 to 2020M1) “U.S. shale oil revolution” periods. In the initial period, oil price changes have negative impact on equity returns of regional banks with no effects for the national bank sample. In the second period, we find very strong oil price effects on equity returns for the top 10 and top 5 regional bank subsamples, consistent with more local transactions to the energy sector. Quantity effects of changes in oil production are discussed, as well as several robustness checks for asymmetries, threshold values, and inclusion of dividends in total returns.

Investigating the effect of ESG on retail banks’ customer equity

AbstractEnvironmental, social and governance (ESG) has recently been gaining attention as an important consideration for corporate management strategies worldwide. Drawing on the literature surrounding equity theory and customer equity, this study aimed to investigate the influence of ESG on the customer equity of retail banks in Hong Kong. Based on a survey of 300 banking customers, the study found governance initiatives affected customer attitude, while environmental initiatives and social initiatives had no significant effect on it. Customer attitude provided a strong explanation for value equity, brand equity and relationship equity. Value equity and relationship equity had a positive influence on purchase intention, but the relationship between brand equity and purchase intention was insignificant. Customer attitude also mediated the relationship between governance initiatives and customer equity. The findings of this study add value to the understanding of sustainable marketing initiatives and responsible banking. The study contributes to the development of the ESG and customer equity literature and advances the implementation of sustainable banking practices. Practically, the results of this study suggest that banking practitioners should focus on governance initiatives as a primary driver of customer equity and purchase intention. Understanding the role of ESG initiatives in customer attitude and customer equity can help to develop and improve sustainable marketing strategies. Policymakers can use a governance approach to promote sustainable and responsible banking practices.

The Credit Suisse bailout in hindsight: not a bitter pill to swallow, but a case to follow

In March 2023, Credit Suisse (CS) was bailed out based on the implementation of emergency law to the exclusion of all shareholder rights of the involved banks, likely violating basic principles of monetary order. However, this paved the way for a support plan amounting to 209 billion Swiss francs and the implementation of a state-orchestrated emergency merger with UBS. By the end of August 2023, UBS had fully paid back the support plan and reported the biggest-ever quarterly profit for a bank, amounting to 29 billion US dollars. UBS also started to absorb CS’s domestic business, thereby abandoning the branding of an institution with a history of 167 years. Popular accounts claim the plan could be considered a success and that there was no cost because the money was repaid. We critically evaluate the CS bailout, shedding light on key issues such as bailout-induced wealth transfers, the “too-big-to-fail” challenge, the likelihood of bank bailouts, the optimal level of bank equity, the doctrinal separation of solvency and liquidity, and the benefits of ex-ante market-based bank fragility indicators rather than ex-post accounting indicators. We infer a financial economist’s perspective, in which supervision is expanded by ex-ante market-based risk indicators, unweighted capital ratios are increased to adequately reflect large bank risks, and ex-ante paid liquidity options are introduced. Finally, we call for a public debate on the willingness of taxpayers to implicitly finance the too-big-to-fail risk of large banks.

Uptake of Digital Organizational Innovations on Financial Performance of Commercial Banks in Kenya

The rapid evolution of digital innovations has globally transformed the banking sector, with commercial banks in Kenya experiencing significant operational changes driven by these advancements. Despite the substantial benefits associated with digital innovations, there remains a gap in understanding the precise influence of organizational innovations on the financial performance of commercial banks. This gap is exacerbated by a lack of comprehensive empirical studies that systematically examine the relationship between digital organizational innovations and financial performance within the Kenyan banking sector. Navigating the dynamic regulatory landscape poses a significant challenge as the industry strives to balance innovation with compliance, thereby potentially dampening the enthusiasm of commercial banks to fully embrace transformative digital initiatives. This study aimed to assess the influence of digital organizational innovations on the financial performance of commercial banks in Kenya, the Evolutionary Theory of Economic Change was used to assist in explaining the objective. Adopting a positivist philosophy, the study targeted a population of 1,470 employees across 39 commercial banks in Kenya, utilizing a stratified random sampling technique to select a sample size of 315 participants, including senior management, supervisory management, and junior officers. A descriptive research design was employed, using structured questionnaires to collect primary data, while secondary data was sourced from banking sector supervisory and innovation survey reports. A pilot test was conducted to estimate reliability using Cronbach’s Alpha, and content validity was assessed with the Kaiser-Meyer-Olkin measure and Bartlett’s test of sphericity. Descriptive analysis was presented using frequency tables and bar graphs. A panel linear regression model was applied, revealing that 76% (R²=0.761, F=822.691, P˂0.0001) of the variations in return on equity (ROE) for commercial banks were explained by digital organizational innovations. The findings demonstrated a positive and significant correlation between the adoption of digital innovations and the financial performance of commercial banks (P˂0.05). The study recommends that commercial banks explore new business models through access to innovative technologies, foster strategic collaborations, and remain aligned with regulatory requirements to enhance financial performance significantly. Embracing a culture of experimentation and agile management policies can help flatten hierarchies that inhibit innovation. Policymakers are encouraged to provide clear guidelines and a harmonized regulatory environment to foster enthusiasm for transformative digital initiatives. The study's findings may not generalize to other industries or geographical contexts due to variations in regulatory frameworks, market structures, cultural norms, and technological infrastructure. Consequently, the study proposes comparative research across diverse contexts to assess the generalizability of these findings.

Effect of Non-Financial Measures of Business Operations on Financial Performance of Deposit Money Banks in Nigeria

This study investigates the effect of non-financial measures of business operations on financial performance of deposit money banks in Nigeria. The study specifically studied the effect of customer satisfaction, service quality delivery, employee development and corporate social responsibility on return on equity of deposit money banks in Nigeria. The study total population is 780 staff of the banks. The study adopted Taro Yamane to obtain a sample of 264 respondents. Questionnaire was distributed to the respondents and only 224 questionnaires were returned. Analysis was carried out based on the number of questionnaire returned. The relationships between the variables were analyzed using regression analysis. The study found a significant relationship between customer satisfaction, product and service quality and employee development and return on equity. The study however, found no relationship between corporate social responsibility and return on equity. The study therefore, concludes that non-financial measures of business operations actually influence financial performance of deposit money banks in Nigeria. The study recommends that: banks should place priority on customer satisfaction if they want to increase their returns; develop more innovative products and invest more in new technology; train and retrain their employees in the use of new technologies.

The Contribution of Perceived Brand Ethics to the Development of Consumer Trust: A Qualitative Study of Moroccan Islamic Banks

The Moroccan banking sector is facing growing challenges to adhere to emerging standards of business ethics and corporate social and environmental responsibility. A marketing ethic based on good organizational conduct is now necessary to consolidate competitive advantage, strengthen market positioning and ensure the long-term sustainability of the corporate brand. This article primarily aims to delve into a relatively overlooked subject within marketing literature: the consumer-perceived ethics in the service sector, the brand equity of Islamic banks, and their consequential influence on brand trust development.

A multi-dimensional connectedness and spillover between green bond and Islamic banking equity: Evidence from country level analysis

The paper delves into the multidimensional connections and spillover between green bonds and Islamic banking stocks from eleven countries. Throughout this study, we further explored optimal hedging mechanisms, as well as optimal portfolio weighting mechanisms, with Islamic banking equities and green bonds. Our empirical results show that there is a moderate level of interrelation between green bonds and Islamic banking indices, with low connectedness throughout the long-term and medium-term. The time-varying spillover effects become higher, albeit low, in the early periods of both SOR and COVID-19 at short-, medium-, and long-term scales, which suggests some diversification and hedging benefits from holding portfolios of the two assets. Country-based Islamic bank markets are not largely affected by disturbances that emerged in some other markets in the short-, medium-, or long-term timescales. The Chinese green bond market has a tendency to be the greatest net risk transceiver for both the green bond and Islamic bank markets over the medium and long term, whilst the global green bond index has been the leading net risk transmitter during the short term. Only the UAE and Saudi Islamic Banking indices act as net risk transmitters in the short and medium term. The empirical findings further suggest that global risk variables are dependable drivers of the extent of spillover between Islamic banking indices and green bonds. Our research shows that owning Islamic bank stocks during COVID-19 and SOR minimizes the significant risk linked to holding green bonds, which has profound implications for risk management and portfolio creation. Thus, our study offers important implications for economic agents.

Financed Emissions and the Cost of Bank Equity

Financed Emissions and the Cost of Bank Equity

The effects of large-scale equity purchases during the coronavirus pandemic

This study examines the effects of the Bank of Japan's (BOJ) large-scale equity purchases on the Nikkei 225 during the coronavirus (COVID-19) pandemic. Although the BOJ started equity purchases in 2010, the purchased amount reached unprecedented levels when the pandemic broke out. The large-scale purchases provide a natural experiment to examine how effective the central bank's equity purchases were in the crisis. Unlike previous studies, we use intra-day data and investigate the purchase effects allowing for endogeneity. We first derive the BOJ's intra-day reaction function by estimating probit models. From this reaction function, we then calculate the BOJ's unexpected and expected purchases and examine their effects on the Nikkei 225 returns in the Tokyo Stock Exchange's afternoon session. We find that the BOJ's unexpected large-scale purchases had large positive instantaneous impacts on intra-day returns during the pandemic. However, the large positive impacts arose because most of the purchases came as big surprises to the markets. We argue that the policy would be effective only if the BOJ continues to surprise the market. We also argue that the BOJ's purchases increased the volatility of the Nikkei 225.