Large Commercial Banks Research Articles

Assessing Market Competition in the Chinese Banking Industry Based on a Conjectural Variation Model

AbstractMost literature on market competition in the banking industry neglects to address strategic interaction among banks. This paper studies interaction among Chinese banks by dividing banks into two groups: dominant banks (the “Big 5” state‐owned banks) and small‐ and medium‐sized banks (joint‐stock banks and large city commercial banks). We test an oligopolistic model with conjectural variation developed by Spiller and Favaro (1984). Using data from 2007 to 2016, we find that banking competition is not in the form of Stackelberg competition per se. Some strategic interactions exist between small‐ and medium‐sized banks and the largest state‐owned bank. We also study the effect of interest rate deregulation on oligopolies' strategic interactions. Our results show that interest rate deregulation stimulates banking competition by reducing collusiveness among the dominant state‐owned banks and enhancing the market power of small and medium banks.

Peer effects of bank loan portfolio on systemic insolvency risk: evidence from China

ABSTRACT By empirically analysing the panel data of Chinese commercial banks, we find that regional city commercial banks significantly mimic their peers in multiple lending parts of loan portfolio, while large nationwide commercial banks behave oppositely to their peers. In addition, by using a Euclidean distance way to measure bank interconnectedness, we reveal that the overlap of loan portfolios between banks is significantly correlated to the similarity of insolvency risk between them. It implies that peer effects of bank loan portfolio are likely to be sources of systemic insolvency risk in the bank system. These results help deepen the understanding of peer effects of bank activities, and provide insights into the correlation between peer effects and systemic risk in banks.

Polish Banking Sector Facing Challenges Related to Environmental and Climate Protection

Purpose: The paper focuses on the comparison of climate and environmental protection activities undertaken in the largest commercial banks in Poland. The second aim is to present conditions for inclusion of environmental and climate risk analysis in the process of monitoring financial stability. Design/methodology/approach: Banks’ standalone audited statements for 2018 were used as a source of data. In defining 8 key areas of environmental risk management within the ESG, the banks’ environmental and climate actions were systematised to draw conclusions on the nature of the initiatives taken and on which types of banks in a given area express commitment and whether it is related to the bank’s scale, shareholding structure and financial standing. Findings: The scope of information on a bank’s involvement in the environmental and climate protection process is not uniform. In the case of smaller private banks and banks with a dominant Treasury shareholding in the ownership structure, this scope is much smaller than in the case of large and medium-sized private banks belonging to global financial holdings. A particularly important commitment to environmental and climate protection in the sector concerns banks belonging to European capital groups that have signed up to international agreements on economic decarbonisation. The scarce information provided by banks with a dominant Treasury shareholding results from the high level of exposure of these banks to companies from high-carbon sectors, also owned by the Treasury. Commercial banks in Poland place the main emphasis on presenting their direct impact on the environment (reduction of energy and other media consumption, recycling and environmental campaigns). Research limitations/implications: The research is limited to the commercial banking sector and only to one reporting period. However, there are no constraints to apply the proposed approach to other samples and for longer data series, and then build a methodology of environmental rating. Originality/value: This article is the first comparative analysis of the involvement of Polish commercial banks in environmental and climate protection. Its results are particularly useful for investors for whom ESG criteria constitute important determinants of decisions.

RETRACTED: Research on credit risk management of small and medium-sized enterprise in the industrial and commercial bank of China

As the largest commercial bank in China, ICBC is a typical representative of the electronic business of SMEs. However, the electronic business for SMEs has credit risks and needs to continuously strengthen the credit risk management for SMEs. By analyzing the organization structure, system and process of credit risk management for SME in ICBC, this paper attempts to conclude that there are flaws on credit risk organization structure, credit risk management process and system is not sound enough, and there are omissions before, on and after the loan, in addition, risk management awareness is not strong. In view of the above problems, this paper puts forward some countermeasures and suggestions to improve the organization structure of credit risk management, perfect the credit risk management system of SME, strictly carry out risk control before, during and after loans, and strengthen the consciousness of risk management. Researching the credit risk management system for SMEs in ICBC has a great educational and practical significance, for other commercial banks establishing and improving their risk management system.

Служащие среднеазиатских филиалов Волжско-Камского коммерческого банка: биографии и деятельность на рубеже XIX - начала XX в. в контексте имперской периферии

The article studies biographies of the employees of the Kokand, Samarkand and Tashkent branches of the Volga-Kama Commercial Bank (VKCB). The Volga-Kama Commercial Bank had an extensive network in the Central Asian region (4 branches). The Volga-Kama Commercial Bank is considered the first large imperial commercial bank, which opened its branch in Tashkent in 1893. The Volga-Kama Bank tried to take over the export of cotton and fruit. Unfortunately, the authors have found no data on the personnel of the Namangan agency of the VKCB. The article draws on archival materials from the Russian State Historical Archive (RGIA). When compiling the portrait of a bank employee, their age, education, service life, previous place of work, marital status, religion, and origin have been taken into account. Based on this data, the authors have been able to determine the professionalism of the working personnel of the VKCB branches in Central Asia. For the first time in world historiography, the biographies of employees of the Central Asian departments of the VKСB have been studied. The authors note that the staff of the VKСB was not professional, as there were few experienced personnel to develop banking on the periphery of the empire. Despite all difficulties, the bank management tried to attract most promising young specialists from local Russian population of the second generation to work in the bank. The local Russian population knew local languages, customs, and local economy, which made them indispensable for successful functioning of banking in the imperial periphery. Imperial banks also recruited non-Russian people. Basically, non-Russian population was involved as translators and advisers on loan granting. During the First World War, local branches of the VKCB began to engage women due to personnel shortage, mostly noble girls graduated from local gymnasiums. It should be noted that the main staff of the VKCB branches consisted of people under 35 years old. In most cases, only local directors had a degree in finance or economics. In the Central Asian branches of the VKCB, there were many teachers and former military personnel among the staff. Despite all the difficulties in recruiting personnel, the Volga-Kama Commercial Bank branches in Central Asia showed good results due to specific economic conditions in the Turkestan General Government.

Bank Risk-Taking and Monetary Policy Transmission: Evidence from China

We present evidence that monetary policy easing reduces bank risk-taking but exacerbates capital misallocation in China after implementing the Basel III capital regulationsin2013. Thenewregulationstightenedbankcapitalrequirementsandintroduced a new risk-weighting approach to calculating the capital adequacy ratio (CAR). To meet tightened capital requirements, a bank can boost its effective CAR by raising capital or by increasing the share of lending to low-risk borrowers. Using confidential loan-level data from a large Chinese commercial bank, merged with firm-level data on a large set of manufacturing firms, we document robust evidence that a monetary policy expansion raises the share of new bank loans to state-owned enterprises (SOEs) after 2013, but not before, because SOE loans receive high credit ratings under government guarantees. Since SOEs are on average less productive than private firms, shifts in bank lending toward SOEs exacerbate capital misallocations, reducing aggregate productivity. We construct a two-sector general equilibrium model with bank portfolio choices and show that, under calibrated parameters, an expansionary monetary policy shock raises the share of bank lending to SOEs, leading to persistent declines in total factor productivity that partially offset the expansionary effects of monetary policy.

The Importance of Banking Marketing in Increasing Banks Competitiveness

The paper aims to analyze the determinant of banks’ competitiveness in local financial markets and to determine differences in this aspect between local banks and branches of large commercial banks, determine the needs of these clients and meeting them in place and time the right fit for the right price, search for the best cost-effective methods to satisfy these desires until they are profitable, search for participation and interaction with others, and identify their commitments to take into account political criteria and legal to the community to which it belong.

Research on the development path and strategy of corporate financial transaction banking business of large commercial banks

in the process of social modernization, the development of corporate financial transaction banking business of large commercial banks needs to realize innovation in combination with various technologies, comprehensively transform considering the current mainstream direction of development, and optimize for practical problems. In the follow-up development, we need to clarify the specific positioning, adhere to the scientific development direction, optimize the bank development process, innovate products and services, build a complete business system, grasp the current development opportunities and open up a new road for future development. Firstly, this paper summarizes the development status of transaction banks, and discusses effective paths and strategies combined with the current development problems in China, hoping to provide reference for future development.

How Do Capital Ratios Affect Bank Risk-Taking: New Evidence From the United States

This study aims to examine the impact of different capital ratios on Non-Performing loans, Loan Loss Reserves, and Risk-Weighted Assets by studying large commercial banks of the United States. The study employed a two-step system generalized method of movement (GMM) approach by collecting the data over the period ranging from 2002 to 2018. The study finds that using Non-Performing loans and Loan Loss Reserves as a proxy for risk, results support moral hazard hypothesis theory, whereas the results support regulatory hypothesis theory when Risk-Weighted Assets is used as a proxy for risk. The results confirm that the influence of high-quality capital on Non-Performing loans, Loan Loss Reserves, and Risk-Weighted Assets is substantial. The distinctive signs of Non-Performing loans, Loan Loss Reserves, and Risk-Weighted Assets have indications for policymakers. The results are intimate for formulating new guidelines regarding risk mitigation to recognize Non-Performing loans and Loan Loss Reserves and the Risk-Weighted Assets for better results. JEL Classification: G21, G28, G29

Can strong capital regulation prevent risk-taking from deposit insurance?

Can strong capital regulation prevent risk-taking from deposit insurance? Denmark offers a unique setting providing solid identification for testing risk incentives from deposit insurance under strong capital regulation. The Danish system is a universal system without strong risk exposure regulation. Commercial banks and savings banks have different ownership structures but are subject to the same set of regulations, but savings banks have no incentive to increase risk after the implementation of a deposit insurance scheme. We show that commercial banks did not increase their risk at the introduction of deposit insurance compared to savings banks. We attribute this to strong capital requirements and a firm closure policy. The results also hold for large commercial banks, indicating that the systemic risk did not increase either. Finally, there is no evidence that commercial banks increase their risk by allowing their customers to increase their leverage (risk) compared with customers in savings banks.

The impacts of acquisition modes on achieving customer behavioral loyalty: an empirical analysis of the credit card industry from China

PurposeThis study aims to investigate the effect of acquisition modes on customer behavioral loyalty to enrich our knowledge of the effectiveness of acquisition modes and how to better target customers in the service industry.Design/methodology/approachUsing a data set from a large commercial bank in China, this study conducts a series of empirical analyses to examine the impacts of two types of acquisition modes (i.e. the gift acquisition mode and customer referral) on customer behavioral loyalty.FindingsGift acquisition has a negative effect on customer behavioral loyalty, as measured by the dropout probability, consumption amount and consumption frequency. Furthermore, this negative relationship could be weakened if the customer is referred by an existing customer.Originality/valueAlthough prior studies have investigated the effectiveness of some acquisition modes in terms of customer loyalty, customer acquisition through the provision of gifts, which is widely implemented in marketing practice, has not been well investigated. This study addresses this research gap and identifies the joint influence of acquisition modes on customer behavioral loyalty, further enriching our knowledge of the effectiveness of different acquisition modes.

Identifying systemically important financial institutions in Turkey

This paper examines the systemic risk of financial firms in Turkey. Using Component Expected Shortfall, we provide estimates of systemic risk in Turkey using daily data from 2005 to 2018 and a comprehensive data set encompassing 54 financial firms. Empirical results show that the preponderance of systemic risk in the sample in Turkey is due to large commercial banks. Top ten systemically important financial institutions dominate systemic risk measures in Turkey and account for more than 90 % of total risk over the sample. Consequently, the risk in the Turkish financial system is concentrated in specific financial institutions and makes close monitoring of the top firms essential. Historical incidence of systemic risk in the sample shows elevated levels of systemic risk correspond to well-known external events. Finally, a bivariate VAR model shows that systemic risk is correlated with measures of global financial risks and has significant negative effects on the real economy particularly on industrial production. This is important from a financial stability point of view in that close monitoring of the systemic risk is important in maintaining a healthy financial system and a well- functioning market economy.

Study on the influence of IFRS 9 on the impairment of commercial bank credit card

ABSTRACT On 31 March 2017, China’s Ministry of Finance issued the ‘Chinese Version of IFRS 9’, making significant changes in the provision for impairment of financial assets. This article constructs a theoretical model of the impairment of financial assets in accordance with the new accounting standards and proposes the method system for the impairment of credit card business under the new accounting standards. Based on the credit card data of a large commercial bank, this article studies the influence of the IFRS 9 on the impairment of credit card business. The results show that, compared with the IAS 39, under the implementation of the IFRS 9, both the asset scale of credit card business needing to be impaired and the provision for impairment of assets significantly improves, but the reserve ratio of the impairment is reduced.

Acquisition mode and credit card overspending behavior: An empirical analysis of the credit card industry

AbstractAlthough credit card overspending behavior has become a critical societal concern with severe negative impacts on consumer welfare and economic stability, research on credit card overspending behavior remains fragmented and understudied. This study investigates new types of antecedents of credit card overspending behavior that are overlooked in the prior literature—the acquisition mode of credit card companies. Based on data set from a large commercial bank in China, this study measures credit card overspending behavior using consumption amount, cash withdrawal amount and overdueness, and suggests that gift acquisition has a positive effect on cash withdrawal amount and overdue probability as well as a negative effect on consumption amount. Furthermore, we find that this relationship could be weakened for female customers and for customers with higher education levels. This study provides theoretical implications for both the credit card overspending literature and customer acquisition literature. It also has important implications for consumer welfare and public policymaking.

Bank branch performance and cost efficiency: A stochastic frontier panel data approach

AbstractThis paper analyses the relationship between performance assessment methods used by banks to evaluate their branches and the corresponding time‐varying cost efficiency. To do this, we employ a panel data framework and consider bank branches' latent heterogeneity, which might arise from unobserved non‐systematic management problems. Our analysis is based on monthly data obtained from the branches of a large commercial bank operating in Spain during the period 2013–2014. The results indicate that there is unobserved heterogeneity and time‐varying cost efficiency in the bank branches, and that inefficiency scores are low, at 1–15%. Time‐varying cost efficiencies are positively associated with measures of the volume of business (the productivity based on value achieved by the branch) and negatively associated with the surface area of the branch and with time. However, no relation was found regarding balance sheet and profit and loss statements (i.e., negative deviations from gross income targets).

Frontline employees’ engagement and business performance: the mediating role of customer-oriented behaviors

PurposeWithin the retail banking sector, the customer-centric business model has become an important and new business trend in recent years. The enhancement of the frontline service employees’ engagement and their customer-oriented behaviors are among the key factors affecting business performance (BP) in this sector of the banking industry. The purpose of this paper is to improve management decisions to enhance BP through examining the relationship between the frontline employees’ engagement and BP while taking into account the mediating effect of customer-oriented behaviors on this relationship.Design/methodology/approachA quantitative approach was adopted to conduct the present study, and the respondents were sampled from a large commercial bank in Iran using a structured questionnaire. Overall, 50 branch managers and 90 frontline employees were selected using random sampling. A confirmatory factor analysis was conducted to ascertain the validity and reliability of the observed items and a structural equation model was used for testing the proposed hypotheses and research framework.FindingsThe findings showed that customer-oriented behaviors mediated the relationship between the frontline employees’ engagement and bank’s branches’ BP. Higher levels of the frontline employees’ engagement enhance the customer-oriented behaviors. It was revealed that the frontline employees are engaged in their job and organization. Moreover, the engaged frontline employees listen carefully to customers, the customer’s problem is important to them and they complete their tasks precisely for customers. It has been confirmed that customer-oriented behaviors enhance branches’ BP. The bank frontline employees’ engagement and customer-oriented behaviors, in turn, affected the bank’s branches’ financial performance, process performance and employee performance compared with the bank’s key competitors.Research limitations/implicationsThis study highlights the value of empirically establishing how employee customer-oriented behaviors are affected by employee engagement as an integrative construct bringing together BP.Practical implicationsThis study can help improve BP by increasing the frontline employees’ engagement and their customer-oriented behaviors. This study suggests that organizations using the findings of this study could effectively assess their frontline employees’ engagement and their customer-oriented behaviors and then plan for improving them.Social implicationsThis study offers a customer-oriented initiative as a social responsibility to be considered by retail banks. In light of the social exchange theory, the banks valuing customer-oriented can provide employees with knowledge, skills, values and support to develop motivation and abilities to demonstrate customer-oriented organizational citizenship behaviors.Originality/valuePrevious studies demonstrated that the employees’ engagement affects their customer-oriented behaviors. In addition, studies have referred to the effect of employees’ customer-oriented behaviors on BP. However, to the best of the knowledge, key questions regarding how the employees’ engagement at the branch level fosters customer-oriented behaviors and, in turn, the bank’s branches’ BP, remain unanswered. Hence, this study contributes to the investigation of the mediating role of the frontline employees’ customer-oriented behaviors in the relationship between their engagement and branches’ BP in the retail banking sector.

Assessing the cyclical behaviour of bank capital buffers in a finance-augmented macro-economy

This paper empirically analyses how the banks’ capital buffers change with the business cycle. We extract the cycle component using univariate and multivariate filters to document how buffers behave. We also account for the impact of financial factors on capital buffers over the business cycle. Using a large panel of banks for the period 2000–2014, we document evidence that once we account for the impact of financial factors on the business cycle, capital buffers behave more pro-cyclically than previously found in the literature. Furthermore, we provide evidence that large commercial banks react differently to business cycle movements compared to small banks. Overall, these results have important implications for the development of macroprudential policy tools for the global financial system.

The Role of Bank Liquidity and Bank Risk in Determining Bank Capital: Empirical Analysis of Asian Banking Industry

This study provides new insights about how bank liquidity and bank risk have influenced the capital ratio of commercial banks operating in Asia’s emerging economies after the financial crisis 2007–2008. The data were collected for 377 banks from the Bankscope database covering the period of eight years between 2010 and 2017. The linear regression panel-corrected standard errors approach is used to find consistent estimators. The results of the overall sample and medium-sized banks regression revealed a positive relationship between bank liquidity and bank capital ratio, whereas the liquidity and bank capital ratio of large commercial banks have a negative association. The impact of liquidity on bank capital ratio is positive but insignificant in the case of smaller banks. The impact of bank risk on bank capital ratio is negative in the case of smaller and medium-sized banks, whereas the association is found positive in the case of larger and overall banks data results in short run, other things remain unchanged. The findings have valued information for researchers, analysts, managers, and policymakers.

Bank valuation and size: Evidence from Japan

This study empirically analyzes whether the valuation of large commercial banks increases with their size. We investigate publicly listed banks in Japan because the Japanese financial system is known to be bank-centered and has several large-sized banks that can be treated as “too-big-to-fail” (TBTF). Our results weakly support the positive relationship between size and Tobin's q for Japanese banks, different from banks in the United States. This implies that a kind of TBTF premium exists, owing to the safety-net function of Japanese banks. However, the benefits of the TBTF premium vanish after controlling for bank fixed effects. Thus, we conjecture that Japanese TBTF banks engage in riskier bank activities, which results in lowering their valuations, as in the case of U.S. banks.

Imprinting Risky Behavior: The Institutional Origins of Bank CEO Risk-Taking

Commercial banks in the United States have taken on more risk since the 1980s, in line with a shift in the dominant business model in the field, from one emphasizing financial stability to one promoting greater risk-taking to maximize shareholder value. But why did certain banks embrace risky strategies more actively than others? Combining insights from the upper echelons perspective and imprinting theory, we argue that bank CEOs who absorbed the principles of shareholder value maximization through MBA education and started their banking career in the post-deregulation era pursued risk-taking more aggressively than other CEOs. We test this argument using data on 194 large commercial banks from 1993 to 2015. Our analysis shows that CEOs with an MBA who entered banking after the mid-1980s were heavier users of brokered deposits—a riskier funding source that contributed to bank instability during the 2007-2009 credit crisis. They also contributed to the use of brokered deposits indirectly by promoting shareholder-value prescriptions known to boost incentives for managerial risk-taking. By highlighting the role that organizational decision-makers—and their institutionally-embedded cognitive orientations—play in driving the uptake of risky strategies, our study contributes to the literatures on corporate risk-taking and institutional change.