Higher Capital Adequacy Ratios Research Articles

Financial integration and banking stability: A post-global crisis assessment

The impact of financial openness on banking stability is complex, with debate on its benefits and drawbacks. Theoretical literature suggests a positive relationship between financial openness and growth, development, and stability, but empirical studies reveal conflicting evidence. This paper examines these contradictions by analyzing data from 58 countries between 2010 and 2020. Using various measures for financial openness and stability, and a double debiased machine learning (DDML) model to control for confounders, we find that financial openness generally enhances banking stability, evidenced by lower nonperforming loan ratios, higher capital adequacy ratios, and increased bank liquidity. However, receptiveness to capital inflows heightens financial vulnerability. Policy implications suggest deeper integration with global markets promotes stability without harming bank profitability, advising against prolonged use of macroprudential policies which hinder development. Our results emphasize careful proxy selection for financial openness and stability, advocating sophisticated techniques like DDML to uncover direct effects.

Determinants of Liquidity Risk in Vietnamese Commercial Banks

Liquidity risk, which tends to compound other risks such as credit and market risks, has become one of the principal risks in banks. Thus, this study examined the determinants of liquidity risk measured by the loan deposit ratio (LDR). The sample included 30 commercial banks in Vietnam based on secondary data coverage from 2017-2021. Descriptive statistics were used to determine the general situation of the banks' assets, liabilities, and business performance. The random effects model (REM) was chosen to determine factors affecting liquidity risk. The results show the huge gap in the business performance of the four state-owned banks and the rest of the joint-stock commercial banks, and the state-owned banks always accounted for over 50% of the total credit, assets, and deposits of the whole banking system. The average banks’ credit and profit growth rates were around 17% and 30%, respectively, and the bad debt ratio was about 2%. Increasing a bank’s credit growth rate and profitability would push up its liquidity risk. On the other hand, holding several liquid securities that banks could sell immediately to meet solvency requirements and maintaining a high capital adequacy ratio (CAR) would reduce their liquidity risk. These findings are valuable to the banks in understanding how to minimize liquidity risk, such as controlling the credit growth rate and CAR, setting appropriate profit targets, and investing in liquid securities. Additionally, by conducting monetary policies, the State Bank should regulate market liquidity and bank liquidity for the safe operation of the financial system.

Research on the Coordination of Bank Capital Adequacy Ratio and Monetary Policy

Capital adequacy ratio and monetary policy are important control measures of financial supervisory authority and monetary authority, respectively. The effective coordination of the two has greatly affected the effectiveness of monetary policy. The article selects the annual data of 16 listed commercial banks in China from 2003 to 2018, and studies the impact of capital adequacy ratio on monetary policy transmission by constructor. listed commercial banks in China from 2003 to 2018, and studies the impact of capital adequacy ratio on monetary policy transmission by constructing a panel regression model. The results show that large state-owned commercial banks play a major role in bank credit channels for monetary policy, and banks with higher capital adequacy ratios are more likely to have a higher capital adequacy ratio. The results show that large state-owned commercial banks play a major role in bank credit channels for monetary policy, and banks with higher capital adequacy ratios are more vulnerable to monetary policy shocks. In addition, the external capital constraint of minimum capital adequacy will cause a multiplier effect when monetary policy is transmitted through credit channels. The multiplier effect produced by joint-stock commercial banks is much smaller than that of large state-owned banks. The multiplier effect produced by joint-stock commercial banks is much smaller than that of large state-owned banks. Therefore, financial supervisory departments must fully consider the interference caused by the capital adequacy ratio on monetary policy, strengthen policy coordination, and unblock the transmission mechanism of Therefore, financial supervision departments must fully consider the interference caused by the capital adequacy ratio on monetary policy, strengthen policy coordination, and unblock the transmission mechanism of monetary policy.

Basel Capital Regulations over Pre and Post Basel III Regime: An Indian Scenario

The adequacy of capital has become a concerned issue because banks being the highly leveraged sector face high risks. So, it is desirable to know at which level of capital is adequate for banks. The focus on capital have existed for a long time but now the definition of capital has changed for banking business due to changes and advancement in banking operations. A bank with higher capital adequacy ratio is considered safe and capable to meet its obligations. The Reserve Bank of India requires all scheduled commercial banks to meet the capital level as stipulated under Basel III norms to comply with international standards. According to the guidelines of Bank for International Settlements (BIS), the banks should maintain that level of capital where a bank can easily recover unexpected shocks and crisis. The adequacy of capital is the measure of financial soundness of banks and indicator of financial health of banks. The banking activities are exposed to various kinds of risks and to manage these risks, banks must maintain sufficient capital. Therefore, it is necessary to set the regulatory guidelines for limits of capital hold by banks. Thus, the present study intends to examine the trends and consistency of capital adequacy ratio of twenty one Indian public sector banks for the period of ten years (2008–2017). The results conclude that the level of capital ratio as per Basel III norms maintained by Indian public sector banks determines the bank’s strength and position.

Board characteristics and firm value: The moderating role of capital adequacy

The global financial crisis increased corporate world uncertainties. Therefore, to meet these challenges, firms take a more proactive approach to tackling various corporate governance and firm value initiatives and policies. This study aims to explore the moderating effect of capital adequacy on the relationship between board characteristics and the firm value of listed banks in Pakistan. To obtain a more robust empirical model and results, this study incorporates moderator and control variables. This study is based on half-yearly secondary data of 560 sample observations from 2009 to 2021. Multiple regression and panel data estimation techniques were employed for the analysis. The study used firm value as a dependent variable, proxied by Tobin’s Q, along with five independent variables, one moderating variable, and two control variables. The results of this study indicate that a higher capital adequacy ratio (CAR) increases firm value and has a moderating effect on board characteristics and firm value. Low proportions of women and independent directors on board affect firm value. The presence of risk management and audit committees in listed Pakistani banks, on the other hand, increases firm value. The banks in Pakistan have no problem with CEO duality. The study also found that bank size has a positive relationship with firm value, while bank age has a negative relationship with firm value.

Information advantages, excessive risk-taking, and capital regulation for BigTechs in financial intermediation

This paper establishes theoretical models to study capital regulation of BigTech firms (BigTechs hereafter) providing financial intermediation services. In our models, BigTechs borrow debts to invest between socially efficient prudent assets and socially inefficient risky assets. Limited liabilities imply that with a higher capital adequacy ratio, BigTechs are more risk averse and favor the prudent asset more. Then we examine how better information of BigTechs will affect BigTechs' incentive for excessive risk-taking, welfare, and capital regulation. The major results produced by our models are as follows: (1) Better information of BigTechs does not eliminate and could in some circumstances exacerbate their excessive risk-taking behavior. (2) Better information of BigTechs does not necessarily improve welfare. BigTechs could employ better information to more precisely identify the socially inefficient risky asset to invest in, causing more severe resource misallocation. (3) Capital regulation is an effective tool to curb BigTechs' excessive risk-taking and to ensure that better information of BigTechs will improve welfare.

Relationship between financial risks and firm value: A moderating role of capital adequacy

The study of firm value and financial risks became more important after the global financial crisis of 2007–2008, as the required risk was mismanaged, resulting in a deterioration in firm value. It is important to study the relationship between financial risks and firm value. This study aims to examine the moderating effect of capital adequacy on the relationship between financial risks and the firm value of listed banks in Pakistan. This study is based on half-yearly secondary data of 560 sample observations from 2009 to 2021. Multiple regression and panel data estimation techniques were employed for the analysis. The study used firm value as a dependent variable, proxied by Tobin’s Q, along with five independent variables and one moderating variable. The results of this study indicate that a higher capital adequacy ratio (CAR) increases firm value and has a moderating effect on financial risks and firm value. Nonperforming loans, net interest margin, and cost income ratio are found to have a significant negative relationship with firm value. The study concludes that the stock prices of listed banks in Pakistan are declining persistently, which causes the stock’s worth to shift from being inflated to being undervalued.

An Analysis Of The Credit Risk Determinant Using Internal Factor And Macroeconomy Data

This study analyzes the influence of internal bank factors and macroeconomic factors on non-performing loans (NPL) using data from the listed banks in Indonesia. We apply panel data analysis. The bank's internal and macroeconomic variables used in this study include inflation, GDP, BOPO, CAR, bank size, LDR, and ROA. The sample includes all listed banks that cover 40 banks for the period 2016 to 2021. The analysis technique uses descriptive analysis and linear regression analysis. The results of the study show that banks with a high capital adequacy ratio (CAR) own a low credit risk (NPL). While the inefficiency (BOPO) is positive and significant confirming the bad managed bank also having bad credit risk management. GDP growth has a positive coefficient but statistically not significant. Internal variables such as Bank Size, LDR and ROA are all not significant. The result confirmed that well capitalized bank take less risk and inefficient banks have bad credit risk management.

The Role of Equity Financing on the Profitability of Indonesian Islamic Banks

Islamic banks provide financing in the form of equity financing and non-equity financing. Equity financing is profit-loss sharing financing which is the main core of Islamic bank business consisting of Mudharabah and Musyarakah. This paper examines the extent to which equity financing affects the profitability of Islamic banks in Indonesia with the control variables consisting of bank-specific variables such as capital adequacy ratio, cost-income ratio, non-performing financing, and macroeconomic conditions such as domestic output, exchange rate. This study employs aggregate data of Islamic banks from January 2010 to December 2019. The estimation method is the Autoregressive distributed lag (ARDL) model. The results prove evidence of the long-run relationship between the dependent andindependent variables. The results show that total equity financing increases Islamic banks' profitability in Indonesia, but only Musyarakah financing significantly boosts profitability. Furthermore, the bank-specific variables affecting profits are capital, efficiency, and nonperforming financing. High capital adequacy ratio (CAR) reduces profit and inefficient Islamic banks and non-performing financing lower profit. Evidence also highlights that worse economic conditions through the economic downturn and sharp depreciation obviously lower the profitability of Islamic banks. These results imply that Islamic banks must capitalize on Musyarakah financing to support the performance of Islamic banks.

Does It Matter How to Fund?: A Research on Turkish Deposit Banks

The Aim of this paper is to examine the possible relationship between liability structure and bank performance. In this context, panel data regression method is used to analyze relationship between bank performance and liability structure of banks. The main data source in this study is The Banks Association of Turkey’s banking statistics between 2005-2018. In the analysis, liability preferences of Turkish banks are used as independent variables and CAMELS performance scores of banks are used as dependent variable. Additionally, variables that are admitted in literature as bank performance determinants are taken into consideration in bank performance model as control variables. According to the results, the banks’ performance is affected by several liability structure variables. Use of loans-especially long term loans- and to have high saving deposits/total deposits positively affect bank performance; while extensive use of non-deposit liabilities, third alternative liability sources, long-term deposits, and foreign currency loansnegatively affect bank performance. As with other liability structure variables, high capital adequacy ratio and leverage also have negative effect on bank performance. Moreover, as control variables GDP per capita, inflation rate, interest rate, bank size, bank efficiency, bank liquidity, bank risk and bank market share have a statistically significant effect on bank performance.

Pengaruh Credit Risk Management Pada Financial Performance Bank Konvensional Yang Terdaftar di BEI

The purpose of this study is to analyze the impact of credit risk management on the financial performance of Indonesian conventional banks in 2016-2020. The sample in this study was 32 conventional banks from 160 observations using purposive sampling technique and secondary data. The dependent variable in this paper is measured by profitability using the return on assets proxy while credit risk management as an independent variable. From the research results, LDR and NPLR have no effect on financial performance. CAR has a positive influence on financial performance so that bank managers are expected to be able to maintain their capital adequacy ratio in accordance with the provisions set by Bank Indonesia to maintain their financial performance because a high capital adequacy ratio is considered safe and tends to meet its financial obligations, while CIR and LDR negative effect on financial performance. By increasing the ratio of costs to income indicates a low level of efficiency in banking operational costs, and low liquid assets will increase cash reserves to reduce liquidity risk. Investors can invest their funds in banks that have a high capital adequacy ratio, cost of income ratio and liquidity ratio to avoid financial risk.

Does capital adequacy ratio influence risk-taking behaviour of conventional and Islamic banks differently? Empirical evidence from dual banking system of Malaysia

Purpose The purpose of this study is to investigate the influence of capital adequacy ratio (CAR) prescribed in Basel III on the risk-taking behaviour of Islamic and conventional commercial banks in Malaysia. It also investigates the claim that the risk-taking behaviour of Islamic banks (IBs) and conventional banks (CBs) managers is identically influenced by CAR. Design/methodology/approach Secondary data for all CBs operating in the Malaysian banking sector are gathered from FitchConnect database for the 2011–2017 period. Both dynamic ordinary least squares and generalised method of moments techniques are used to estimate a panel data of 43 commercial banks, namely, 17 IBs and 26 CBs. Findings The findings of this study lend support to the favourable influence of CAR set in Basel III accord on risk-taking behaviour of both types of banks. CBs appeared to be remarkably better off in terms of capital buffers. Evidence is established on the identicality of the risk-taking behaviour of IBs and CBs managers under CAR influence. Practical implications Even though a high CAR is observed to hamper risk-taking of banks, the findings may serve as a signal to regulators to be mindful of the implications of holding a high CAR. Similarly, managers may capitalise on the findings in terms of strategising for efficient use of the considerable capital buffers. Shareholders are also concerned about managers’ use of the considerable capital buffers. Originality/value This study is among a few studies that endeavoured to provide empirical evidence on the claim that IBs mimic the conduct of CBs in light of the influence of CAR prescribed in Basel III on risk-taking behaviour, particularly banks operating within the same banking environment.

Defining Influential Factors of Capital Adequacy Ratio: An Examination upon Turkish Banking Sector (2006/Q1-2019/Q1)

Capital adequacy ratio (CAR) of the Turkish Banking Sector (TBS) decreased dramatically from 30.9% in 2003 to 17.1% as of May 2019. This figure shows that although TBS has still a relatively high CAR compared to many countries, unfortunately there is a decreasing trend. A downward trend in CAR constitutes risks due to the limit of providing credits. Therefore, the level of CAR has importance for making a positive contribution to sustainable economic growth. So, influential factors of CAR should be determined first. In this context, Multivariate Adaptive Regression Splines (MARS) method, 14 explanatory variables, and quarterly data are used for the period of 2006/Q1-2019/Q1. It is determined that credits/total assets ratio, legal equities, risk weighted assets, nonperforming loans (NPL), NPL/total credits ratio, and credit/deposit ratio are influential factors on CAR in Turkey.

The effect of financial performance and corporate governance to stock price in non-bank financial industry

Indonesia’s financial sector is highly dominated by the banking industry than the non-bank. It controlled almost 74% of Indonesia’s financial assets in 2014. After post-crisis restructuration, the banking sector has become stronger, with a higher capital adequacy ratio and profitability. While, the non-bank financial industry is expected to solve the problems in the Indonesian economy, as well as becoming one of the long-term economic instruments. The purpose of this study is to test and analyse the effect of financial performance and the implementation of corporate governance on the non-bank financial industry stock prices on the Indonesia Stock Exchange in 2012-1016. The research population includes the non-bank financial industry listed in IDX, as many as 37 companies. This study found the probability, managerial ownership, institutional ownership and the composition of the independent commissioner partially and simultaneously does not significantly influence the stock price of the non-bank financial industry.

Pengaruh Capital Adequacy Ratio, Biaya Operasional terhadap Pendapatan Operasional, Loan to Deposit Rasio, dan Non-Performing Loan Terhadap Kinerja Keuangan

Penelitian ini bertujuan untuk (1) menganalisis pengaruh Capital Adequacy Ratio (CAR) terhadap kinerja keuangan dan nilai perusahaan. (2) Menganalisis pengaruh Biaya Operasional terhadap Pendapatan Operasional (BOPO) terhadap kinerja keuangan dan nilai perusahaan. (3) Menganalisis pengaruh Loan to deposit ratio (LDR) terhadap kinerja keuangan dan nilai perusahaan. (4) Menganalisis pengaruh Non Performing Loan (NPL) terhadap kinerja keuangan dan nilai perusahaan, serta menganalisis pengaruh kinerja keuangan terhadap nilai perusahaan. Jenis penelitian yang digunakan dalam penelitian ini adalah penelitian kuantitatif. Populasi dalam penelitian ini adalah perusahaan Industri Perbankan yang tercatat di Bursa Efek Indonesia. Teknik penentuan sampel yang digunakan adalah purposive sampling. Teknik analisis data yang digunakan adalah analisis kualitatif, uji asumsi klasik, analisis jalur (Path analysis) serta pengujian hipotesis. Hasil penelitian bahwa rasio kecukupan modal (CAR) berpengaruh positif dan tidak signifikan terhadap kinerja keuangan (ROA), dimana semakin tinggi rasio kecukupan modal maka laba yang dicapai meningkat. Sedangkan rasio kecukupan modal berpengaruh positif dan signifikan terhadap nilai perusahaan, karena semakin tinggi kecukupan modal maka nilai perusahaan meningkat. Rasio Loan to Deposit Ratio (LDR) berpengaruh positif dan tidak signifikan terhadap kinerja keuangan (ROA), dimana semakin tinggi kiredit yang disalurkan maka laba yang dicapai oleh perusahaan akan meningkat. Begitu pula LDR berpengaruh positif dan signifikan terhadap nilai perusahaan, karena semakin tinggi kredit yang tersalurkan maka pendapatan bunga akan meningkat. Rasio Non Performing Loan (NPL) berpengaruh negatif terhadap kinerja keuangan (ROA), dimana semakin tinggi penanganan kredit bermasalah (diragukan, kurang lancar dan macet) maka laba yang dicapai akan menurun. Sedangkan NPL berpengaruh negatif dan signifikan terhadap nilai perusahaan, karena semakin tinggi kredit bermasalah maka akan menurunkan nilai perusahaan dan hal ini akan mempengaruhi perusahaan investor untuk menanamkan sahamnya pada perbankan.

Defining Influential Factors of Capital Adequacy Ratio: An Examination upon Turkish Banking Sector (2006/Q1-2019/Q1)

Capital adequacy ratio (CAR) of the Turkish Banking Sector decreased dramatically from 30.9% in 2003 to 17.1% as of 2019 May. This figure shows that although TBS has still relatively high CAR compared to many countries, unfortunately there is a decreasing trend. A downward trend in CAR constitutes risks due to the limiting of providing credits. Therefore, the level of CAR has importance for making a positive contribution to sustainable economic growth. So, influential factors of CAR should be determined first. In this context, Multivariate Adaptive Regression Splines (MARS) method, 14 explanatory variables, and quarterly data are used for the period of 2006/Q1-2019/Q1. It is determined that credits/total assets ratio, legal equities, risk weighted assets, nonperforming loans (NPL), NPL/total credits ratio, and credit/deposit ratio are influential factors on CAR in Turkey.

Pengaruh Makroekonomi, Capital Adequacy Ratio, Loan To Deposit Ratio dan Pertumbuhan Kredit terhadap Non Performing Loan pada Bank Asing di Indonesia Periode 2013-2014

The aim of this study was to understand the influence of macroeconomic factors in this research are exchange rate and inflation, while for the internal bank are capital adequacy ratio (CAR), loan to deposit ratio (LDR) and credit growth towards non performing loan (NPL). The data that used is quarterly data from financial statements of Foreign Bank in Indonesia period of 2013 until 2014. Data analysis method used is multiple-regression analysis. The results showed that there was a simultaneous influence of independent variables towards NPL of Foreign Bank in Indonesia. However, partially showed that CAR has a negative influence, the higher capital adequacy ratio, it can serve to accommodate the risk of losses faced by banks due to the increase in non performing loans. LDR has a positif influence, LDR shows expansion of bank loans made to measure current or whether bank intermediary function. LDR which leads to high risk of uncollectible loans to be high which will result in a non performing loans.

The impact of banks’ capital adequacy ratio on bank lending channel of monetary transmission in Russia

The new Basel III rules of macroprudential regulation were introduced for the Russian banking sector in 2014. This article analyzes a previously unexamined for Russia impact of capital adequacy ratio on the effectiveness of bank lending channel. It is shown that when banks satisfy capital regulation rules this has a direct influence on this channel of monetary transmission mechanism: a high capital adequacy ratio weakens a contractionary effect of an increase in the Bank of Russia key rate and further stimulates credit growth when the Bank of Russia decreases its key rate. The peculiar properties of the Bank of Russia key rate dynamics in the previous years allowed to reveal the asymmetry of monetary transmission. Such an analysis also reflects the value-added of the present study.

OPTIMAL BANK CAPITAL AND IMPACT OF THE MM THEOREM: A STUDY OF THE PAKISTANI FINANCIAL SECTOR

The financial sector of Pakistan is showing stability and resilience to financial shocks. Further, with increased ratios for equity capital, its performance is robust and strong. Globally improved financial conditions are also benefiting it. The banking industry is working under competitive environment that is further illustrated by low bank spreads, lower figures for non-performing loans, higher capital adequacy ratios and increased total assets. This study is done with the aim to investigate the newly recommended capital obligations by Basel III, which has created a debate for and against it. It is argued that it will lead to increased lending rate and shrink loan growth and credit supply. Proposed higher capital levels will increase marginal cost for funds which will result in higher rates for lending. For Pakistani banks, this study depicts that overall changes are negligible if funding mixture is changed. Further, the modigliani and miller (MM) offset is illustrating its full impact.

Research on the Impact of Capital Adequacy Ratio on Monetary Policy Transmission of Our Country

The paper analyzes the quarterly data of 16 listed banks of our country from 2010 to 2015 by classification and applies panel data model to study the impact of CAR (Capital Adequacy Ratio) on monetary policy transmission of our country. The result shows that bank credit channel of monetary policy exists. Large banks play a leading role in bank credit channel of monetary policy trnasmisson of our country, CAR difference makes monetary policy exert heterogeneous impact on bank sectors and the bank with higher CAR is esaily affected by monetary policy. At last, based on the research redult, the paper proposes suggestions for guaranteeing smoothness of monetary policy bank credit transmisson channel. Meanwhile, it proposes that the financial supervision of large banks shall be distinguished from that of national joint-stock banks and city commercial banks.