Financial Sector Stability Research Articles

Operational risk management, financial sector stability and sustainable development in West Africa

Achieving sustainable development in West Africa is vital for integrating environmental, social and economic well-being in the region. This study examines the impact of operational risk management and financial sector’s stability on sustainable development in West Africa, focusing on countries that are members of the Economic Community of West African States (ECOWAS) from 2015 to 2022. Data from the World Development Indicators (WDI) and country Policy and Institutional Assessment (CPIA) were analyzed using the systems GMM to control for endogeneity. The study found conflicting results for financial sector stability’s impact on adjusted net savings and the sustainable development index. While financial sector stability had a negative effect on adjusted net savings, it had a positive impact on the sustainable development index. Additionally, environmental taxes were found to contribute to sustainable development by promoting efficiency and reducing carbon emissions. In conclusion, addressing operational risks, ensuring financial sector stability and promoting sustainable development can help achieve SDGs 8, 9, and 11, creating a stable, inclusive, and resilient economic environment conducive to long-term growth and sustainability in West Africa.

Resource dependence and life expectancy in sub-Saharan Africa: Does financial sector stability break the curse?

Natural resource wealth can contribute to human and economic development if the revenues from natural resource sectors are effectively invested by the government. In particular, countries with abundant natural resources have the potential to experience significant development and improvements in their quality of life. This study first examines the impact of natural resource rents on life expectancy in sub-Saharan Africa. We then investigate the moderating role of the financial sector in this relationship. Using mainly the Generalized Moments Method in a panel of 44 Sub-Saharan African countries over the period 1990–2021, the results obtained in this paper reveal a negative effect of natural resource rents on life expectancy, supporting the resource curse-health hypothesis. However, the stability of the financial system moderates this relationship and makes it positive, at specific thresholds. These results are consistent with Hirschman's conjecture that production leakage is low in landlocked countries, but that there are stronger links with public revenues than with other sectors of activity. The ‘wealth channel’ lubricated by the financial sector that this study identifies calls for greater caution when adopting non-rentier policies in countries exploiting their natural wealth, specifically countries with low human capital. We suggest that a portion of resources should be allocated to financing human capital in order to increase life expectancy.

Operational Risks Faced by Financial Institutions in the Digital Age: A Case of Nigeria

Purpose: The aim of the study was to examine operational risks faced by financial institutions in the digital age: a case of Nigeria. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: The study found that financial institutions in Nigeria are confronted with a myriad of operational risks in the digital age, stemming from the rapid adoption of technology and the evolving cyber threat landscape. The shift towards digital banking and fintech innovations has introduced new vulnerabilities, including cyberattacks, data breaches, and fraudulent activities, posing significant challenges to the security and integrity of financial systems in Nigeria. Operational risks associated with technological disruptions, such as system failures, IT outages, and disruptions to digital payment platforms, can undermine the reliability and efficiency of financial services, leading to customer dissatisfaction and financial losses. The proliferation of mobile banking and digital payment channels has heightened concerns about financial inclusion, data privacy, and regulatory compliance, necessitating robust risk management frameworks and regulatory oversight to safeguard the stability and resilience of Nigeria's financial sector. Unique Contribution to Theory, Practice and Policy: Technology Acceptance Model (TAM), Agency Theory & Resource Dependence Theory may be used to anchor future studies on operational risks faced by financial institutions in the digital age: a case of Nigeria. Financial institutions should prioritize the implementation of robust cybersecurity measures, including regular security audits, penetration testing, and employee training programs. By enhancing cybersecurity awareness and preparedness, institutions can mitigate the risk of cyberattacks and data breaches. Regulatory authorities play a crucial role in shaping the regulatory landscape to address operational risks in the Digital Age. Policymakers should collaborate with industry stakeholders to develop robust regulatory frameworks that promote innovation while safeguarding financial stability and consumer protection.

Revitalizing Criminal Liability Models in Banking Regulations: Towards Achieving Justice

The current model of criminal liability for banking crimes does not provide certainty and justice. For this reason, legal reform is indispensable and can ensure justice in enforcing the law in the banking sector, ensuring that every offense receives appropriate punishment. The ultimate goal is to build a system that not only emphasizes sanctions but also prevention. Justness in banking regulation is not only about law enforcement but also about strengthening public confidence and maintaining financial sector stability. By integrating fairness as a key element, this article offers a view of how the banking sector can develop justness and sustainability for all parties involved.

Financial frictions in a macroeconometric model: A counterfactual analysis for the case of Slovenia

The paper investigates the importance of modelling the effects of financial frictions in a macroeconometric framework for the small open economy of Slovenia. We enhance the model with additional behavioural equations pertaining to business and residential investment, the respective lending rates, and the gross operating surplus of non-financial companies. The estimation period spans from 1999Q1 to 2019Q4, meaning a period of significant financial distress was included in the analysis. Counterfactual analysis was conducted by comparing simulation results from a macroeconometric model with the explicit modelling of financial frictions to a model with limited transmission effects. The results indicate that financial frictions significantly hinder macroeconomic development under adverse macroeconomic scenarios. Policymakers’ measures should focus on maintaining financial sector stability and enabling external financing access for non-financial companies and households during adverse economic situations.

URGENSI RESESI EKONOMI DAN PENGARUHNYA TERHADAP STABILITAS SEKTOR JASA KEUANGAN

The aim of the research is to determine the development of the Indonesia financial services sector amidst the issue if the economic recession and to map strategies and policies that need to be improved through the implementation of structural reform policies in theIndonesian economy. The high dynamics of the global economy has resulted in adecline in intermediation performance in several national economics sectors. Meanwhile, the stability of the domestic financial services sector remains maintained with solid capital, a maintained risk profile and adequate liquidity. As a preventive measure in facing a recession to minimize the impact on society and encourage national economic performance through the implementation of structural reform policies in the Indonesian economy to maintain monetary stability and financial system stability as elements of continuity in supporting the planning and implementation of sustainable development programs through optimizing management owned natural resources, building reliability in the industrial sector, building resilience in the energy and food sectors, strengthening the economic financing structure,developing inclusive economic activities and strengthening development capital capabilities.

2008 Financial Crisis: Analysis and Guidance

The 2008 financial crisis in the United States severely impacted the global economy. Amid an escalating crisis, the US government implemented a series of bailout policies, which stabilized the domestic market and contributed to global economic recovery. This paper aims to investigate the reasons for the crisis and analyze the advantages and disadvantages of the policies implemented to derive recommendations for preventing and managing financial risks. Studies have indicated that effective government intervention through regulatory policies can prevent bank failures and the deterioration of financial crises. This provides valuable insight for dealing with potential financial risks posed by the Ukraine crisis and the COVID-19 pandemic. The findings of this research highlight the importance of implementing effective regulatory measures to safeguard the financial sector's stability.

ФУНКЦІОНУВАННЯ НЕБАНКІВСЬКИХ ФІНАНСОВИХ УСТАНОВ В УМОВАХ СУЧАСНИХ ВИКЛИКІВ

The stability and development of the country's financial sector is determined by the presence of a well-developed network of non-bank financial institutions. The latter include financial and insurance companies. The purpose of the article is to assess the activities of non-bank financial institutions, identify the advantages and disadvantages of their activities and develop proposals for improving their performance in the context of current challenges. The article analyses the current challenges facing the financial intermediary market, which require an immediate response. It presents the dynamics of the financial sector in Ukraine and analyses its changes since the beginning of the Russian aggression. It is found that the war has created additional risks for non-bank financial institutions, such as the risk of client insolvency, the risk of changes in legislation and regulation, the risk of falling asset prices, rising inflation and exchange rate depreciation. This may lead to increased losses and reduced financial stability of non-bank financial institutions, negatively affecting their liquidity and solvency. Proposals are made to improve the activities of non-bank financial institutions in the face of current challenges, in particular: the market of non-bank financial institutions should adhere to high standards of corporate governance and transparency, which will have a positive impact on the level of confidence in the market and give it an additional impetus for development; adhere to the Strategy for the Development of the Financial Sector of Ukraine until 2025, as the current military-political situation has made adjustments that need to be taken into account; the system of regulation and supervision of the non-bank sector should be improved. In market segments where there are no EU standards, national standards based on international experience will be introduced. It is noted that non-bank financial institutions should continue to actively develop their activities, improve and develop new products and services of interest to consumers. Non-bank financial institutions play a particularly important role for large companies which, due to the nature of their activities, have business contacts with many counterparties with which it is technically impossible to settle without the assistance of financial intermediaries.

Analisis Efisiensi dDan Keberlanjutan Ekonomi Syariah dalam Konteks Pemilu 2024 di Indonesia: Bibliography Study

This research aims to investigate the impact of the 2024 General Election on Islamic economy in Indonesia using an integrated approach. The primary focus of this study is to develop an analytical model that encompasses economic efficiency, market sentiment, and relevant government policies. By employing sentiment analysis in the market and Islamic investment, the research intends to depict the relationship between public political choices and their effects on market confidence and investment decisions in the Islamic financial sector. Additionally, the study will assess the current government policies' impact on the growth of the Islamic economy and formulate improvement recommendations to support the stability of this sector. Through case studies on Islamic banks undergoing significant changes post-election, the research will deepen the understanding of adaptive operational strategies and their impact on the stability and efficiency of the Islamic financial sector. The results of this research are expected to provide a holistic view of the interconnection between political dynamics, the Islamic economy, and government policies, laying the foundation for the development of sustainable Islamic economic strategies in Indonesia.

THE IMPACT OF CHANGES IN BANK INDONESIA'S INTEREST RATE POLICY ON THE LIQUIDITY OF CONVENTIONAL COMMERCIAL BANKS

This study aims to examine the impact of Bank Indonesia's interest rate policy on customer savings decisions regarding choosing savings products in conventional banks, as well as its effect on the liquidity of these banks. The research utilizes a literature review method with a qualitative descriptive approach. The results and discussion indicate that the offered interest rates by conventional banks significantly influence customer behavior in selecting savings products. Changes in interest rates can affect customers' inclination to save in banks and consequently impact the liquidity of conventional banks. Other factors that influence customer decisions include product promotions, service quality, and customer preferences. While changes in Bank Indonesia's interest rate policy can affect customer loyalty to banks, customer preferences in choosing savings products are also influenced by other non-interest rate-related factors. This study provides an in-depth understanding of the impact of interest rate changes on the liquidity of conventional banks, offering valuable insights for Bank Indonesia and conventional banks in formulating effective policies to maintain financial sector stability and foster sustainable economic growth.

Financial Development: The Role of GDP per Capita Dynamics in Low- & Middle-Income Economies

This study delves into the complex role of economic growth on financial development within low- and middle-income economies (LMIE). It analyzes a dataset spanning 85 countries from 1980 to 2020, collapsed into 9 periods, yielding 765 observations. Employing General Method of Moments (GMM), including two-step system GMM and forward-orthogonal deviations IV/GMM methods, the research uncovers intriguing dynamics. Positive shifts in GDP per capita are found to correspond with heightened financial development, whereas negative changes exhibit an adverse relationship. Government consumption yields mixed results, and inflation negatively impacts financial development, while trade openness and favorable terms of trade exhibit positive associations. These findings underscore the significance of economic development, price stability, trade openness, and financial sector stability in nurturing financial development in LMIE. Therefore, policymakers are encouraged to prioritize strategies aimed at fostering economic growth, income augmentation, and economic resilience, particularly in times of economic turmoil. This research offers a unique contribution by dissecting economic growth into positive and negative changes, providing insights into their distinct impacts on financial development using GMM estimation. It empowers policymakers to leverage economic growth shifts and trade reforms for inclusive financial development.

Mengevaluasi Kinerja Perbankan Syariah Berdasarkan Keuangan di Bank BRI Syariah Melalui Rasio Keuangan dan Laporan Keuangan

In the context of the global meeting of the sharia financial industry, assessing the performance of sharia-based financial institutions is crucial for evaluating the stability and growth of the sector. This abstract focuses on analyzing the financial performance of BRI sharia bank, as one of the main players in the Indonesian sharia banking industry. By using financial report data for the 2018, 2019 and 2020 periods, this analysis explores the bank's financial performance through aspects such as profitability ratios, liquidity, solvency and bank activity and health. It is hoped that the results will provide in-depth insight into the contribution of BRI sharia banking to the growth and stability of the sharia banking financial sector. Through this analysis, it is hoped that a very strategic and relevant recommendation can be found to improve the performance of sharia banking, especially from this discussion which is based on BRI sharia banking.

Sustainability reporting and financial performance of listed financial firms in Kenya

Financial sector stability is vital for the realization of economic development. Failure to incorporate environmental, social and governance (ESG) elements into corporate strategies can lead to corporate failure. Through the adoption of a descriptive research design, this study aims to determine the relationship between sustainability reporting and the financial performance of financial companies listed on the Nairobi Securities Exchange (NSE) in Kenya. Through the census method, the study population of twenty-three listed financial firms was obtained, and secondary data for the period from 2015 to 2021 was extracted through content analysis. Data on predictor variables were obtained through a document check index utilizing a non-refined exploratory factor analysis, while data on the response variable were obtained directly from annual reports. The data were analyzed through descriptive and inferential statistics. Modelling was further adopted through feasible generalized least squares (FGLS) to counter the problem of first order serial correlation. The findings indicate a positive and significant relationship between ESG reporting and the financial performance of listed financial firms in Kenya. The results imply that firms should embrace sustainability since ESG drives corporate strategies and will help firms to improve their performance, which will bring improved resilience. Focus on the triple bottom line enables value maximization for the three Ps – profit, people, and planet – thus facilitating sustainable development. The harmonization of reporting guidelines which is process-driven rather than content-driven will minimize greenwashing by firms. Lastly, industry players should ensure the availability and quality of ESG data.

Impact of Financial Development on Inflation in Tanzania: Empirical Evidence from the VECM Approach

This study examines the impact of financial development on inflation in Tanzania using time series data from 1980 to 2020. By employing the VECM analysis method, the study contributes to the existing literature on the relationship between financial development and inflation. The findings reveal that financial development has a significant long-run impact on inflation in Tanzania, resulting in a reduction in inflation in the country. However, in the short run, the impact of financial development on inflation is not statistically significant. Therefore, the study recommends that the government implement appropriate regulatory policies and supervise financial institutions to promote financial sector stability. Further, to promote financial sector stability, greater financial inclusion, higher investment, and economic growth, the government should improve financial market infrastructure, expand the coverage of financial institutions, and increase access to credit. Additionally, fostering the development of more efficient payment systems, particularly electronic payment systems, can mitigate expenses and potential risks associated with cash transactions. Moreover, promoting financial inclusion can reduce the need for cash and enhance the efficacy of monetary policy, serving as a preventive measure against inflationary pressures and unnecessary credit growth.

Islamic financial development & economic growth: the emergence of Islamic financial market in Pakistan

PurposeThe impact of Islamic finance on economic growth is an ongoing debate. The purpose of this study is to empirically evaluate how the development of Islamic finance affects the long- and short-run economic growth of Pakistan.Design/methodology/approachThe institutional variables, Islamic banking development (IBD), Islamic bond market development (IBM) and Islamic stock market development (ISM), are considered as measures of Islamic financial development, and real gross domestic product (GDP) is taken as measurement proxy of economic growth. The quarter time series data from Q1:2006 to Q4:2021 is analyzed through Autoregressive distributed lag model, Bounds test, ECM and Pairwise granger causality test.FindingsThe findings of this study indicate that in the long run, there is a significant and positive correlation between IBD and ISM with the real GDP, though ISM negatively cointegrated with real GDP in the short run. In contrast, IBM and real GDP did not find cointegrated in the long run, though the relationship is significant but negative in the short run.Practical implicationsThe findings highlight Islamic financial development in Pakistan can contribute to the country's economic development, and this can be achieved by improving the infrastructure, increasing skilled professionals, creating a favorable legal environment and ensuring financial sector stability. Investors can diversify their investments and mitigate risk by adding Islamic financial instruments to their portfolios.Originality/valueThis pioneering study simultaneously measures the cause and effect relationship between Islamic financial development indicators (Islamic banking, Islamic bond and Islamic stock) and economic growth in Pakistan.

Assessing the Relationship between Enhanced Capital Requirements and Banks' Cost of Equity: Evidence from Publicly Listed Banks in Bangladesh

This paper examines the relationship between the cost of equity and the level of capital maintenance for banks in Bangladesh. Using data from publicly listed scheduled commercial banks, the study finds a significant negative empirical relationship between the cost of equity and banks' capital maintenance level. Specifically, higher levels of equity lead to a reduced cost of equity, with a 10-percentage point increase in capital resulting in a 4.39 percentage point reduction. The study also finds that the quality of capital, particularly Tier 1 capital, heavily impacts the relationship between the two variables. Other control variables, such as profitability, liquidity, and non-performing loans, also impact the cost of equity. Overall, the study provides empirical evidence for the benefits of enhancing capital maintenance and improving the quality of capital to strengthen bank sustainability and financial sector stability in Bangladesh.

Analisis Indikator Financial Stress Sebagai Alat Untuk Mengukur Tingkat Kestabilan Aspek Keuangan Di Indonesia

Many elements may influence defining financial sector stability can be a challenge. The sub-stress level of the financial sector can be used as a proxy to measure the soundness of the financial sector. One technique for assessing the stability of the financial sector is the financial stress index, which is a composite index whose elements can be broken down using factor analysis. Because the index is dominated by the banking component which is very sensitive to the volatility of macroeconomic conditions, I conclude that the financial stress index formed from bank variables is the index with the highest significance for financial stability in Indonesia. The inflation rate and BI rate are indicators to assess this condition.
 

Institutionalization of European Union membership of the Republic of Moldova

Moldova is a parliamentary democracy that has recently embarked on a strong reform agenda despite a series of exogenous crises. The parliamentary nature of the democracy has been confirmed by recent competitive elections at parliamentary and presidential level. The country’s legal and constitutional framework largely corresponds to European and international standards. As regards the political criteria, Moldova has a solid foundation in place to reach the stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities. As regards the economic criteria, Moldova has pursued reasonably sound macroeconomic policies, significantly strengthened financial sector stability, and improved the business environment. Speaking about capacity to fulfil the obligations of membership, Moldova has worked since 2016 on the implementation of the EU-Moldova Association Agreement, including a Deep and Comprehensive Free Trade Area (AA/DFCTA). These agreements already capture significant amount of the EU acquis and Moldova has gradually taken up the alignment process across many sectors and has a satisfactory track record of implementation. Overall, Moldova is a European State committed to respecting and promoting the values on which the European Union is founded.

A Study On Performance Of Financial Institutions In Ghana

The aim of this study is to investigate the performance of Ghanaian financial institutions. This study has used four proxies intended to measure the performance of financial institutions namely: financial access, financial depth, financial efficiency and financial stability. The overall proxies are consisted of thirty variables. In the study, there are four objectives: measuring service of financial access in Ghanaian financial institutions is the first one. The second objective is to examine the size of Ghanaian financial institutions. The third and fourth objectives are to measure the efficiency and stability of Ghanaian financial sector. We created a development of financial performance model describing the variables in this study. The main analysis of the study is Mean calculation and Weighted Least Squares Multiple Regression Analysis (WLS.) This study investigated secondary data. The data was analyzed by using Statistical Package for Social Sciences (SPSS) in descriptive statistics and Excel Software. The result showed significance in financial access (F= 43.352 P= .000) with r-value (r= 949**) and financial depth (F= 42.973 P= .000) with r-value (r= 925**) while financial efficiency and stability showed insignificance. This holistic study that combined access, depth, efficiency and stability proved that Ghanaian financial institutions are inefficient and there is instability as well.

An Analysis of the Impact of Digital Financial Inclusion on Financial Stability

Over the last few years the world at large have witnessed a rapid development in digital finance providing a promise to accelerate financial and economic inclusion. This has led to an inclusive growth focused on financial inclusion as a policy issue. Digital financial services have allowed governments to disburse funds to those in need quickly and have opened up new opportunities to many households and firms that had limited or no access to formal financial services. The major objective of the study was to examine the impact of digital financial inclusion on financial sector stability. The study adopted a quantitative research design and used two-step Generalized Method of Moments for dynamic panel data to explore such a relationship in twelve selected banking institutions for the period 2013 to 2023. An index of digital financial inclusion, z-score, real GDP, loans to asset ratio as well as inflation were used as data variables. The results of this study suggest that digital financial inclusion has a significant positive relationship with bank stability (z-score). Economic growth has a marginal positive effect with bank stability. In order to achieve sustainable digital financial inclusion, the study calls for policymakers to ensure digital financial literacy for all since it feeds into bank stability and also reduces bank insolvency. They should also find ways of enhancing depositor confidence and trust in the banking industry.