Non-banking Sector Research Articles

Why are open banking models in Europe underperforming?

This study investigates the foundations underpinning open banking models in Europe and identifies levers to improve their performance. Based on a review of the literature, it distinguishes four contexts for open banking: platformisation, data sharing, FinTech and regulation. The users of open banking services are surveyed to determine factors driving adoption and identify those entities that customers trust with their data and funds. The results indicate that the slow adoption of open banking services is in large part due to customers’ poor understanding of such services. The results also show the importance of usefulness and trust in driving adoption. These findings highlight the disproportionate attention being given to service provider infrastructure and the ecosystems of new entrants, and indicate that more consideration should be given to the actual users of open banking frameworks. In response to the findings, the study proposes a roadmap to mitigate the main weaknesses in current open banking models. The conclusions of this study are relevant not only to the development of open banking regulations in other territories, such as the USA and Canada, but also to the extension of data-sharing regulations to non-banking sectors.

비은행권 금융회사 대출의 가계연체율 결정요인에 관한 연구

The purpose of this study is to analyze the dynamic interrelationship between household overdue rate of the banking and the non-banking financial companies, the factors of the household’s ability to pay, and the factors of household’s equity capital. We set up the model based on the solvency hypothesis and the equity capital hypothesis to analyze the effect of household overdue rate in banking and non-banking sectors. We identified the dynamic effects between related variables through impulse response analysis and variance decomposition analysis using the VAR model. The result of the analysis is as following. First, the household overdue rate in the banking sector was affected only by the previous one. Because the rate remains very low, the household default risk in the banking sector is very low. Second, the household overdue rate in the non-banking sector was more affected by household consumption than household income. Third, the household overdue rate in the non-banking sector was more affected by changes in house prices in metropolitan area than non-metropolitan area. Forth, the household overdue rate in the non-banking sector was more affected by changes in house prices in single-family house than apartment and multi-units house. According to these research results, it is necessary to stabilize the price control and reduce the burden of the financially vulnerable in terms of managing the risk of household overdue rate of non-banking companies. Furthermore, the government should strengthen integrative financial regulations of non-banking financial companies to manage potential household default risks.

Dynamization Analysis of Capital Inflow, Credit Allocation, and Banking Performance using Panel Vector Autoregressive

The direction of globalization and the integration of the financial system continue to increase, in line with the increasing capital flows, which is the focus of discussion in this research. This study applies panel data analysis to analyze banking behavior in order to improve its performance. The analysis uses panel data from 1991 to 2020 in 39 countries. Return on Equity (ROE) as a measure of the success of banking operations is determined by various interrelated factors. One of the variables closely related to banking performance is the share of non-financial business loans, the share of capital inflows entering the banking sector, and the share of capital inflows entering the non-bank sector. Economic variables that support good banking performance are GDP growth, bank concentration, inflation, leverage, and bank efficiency. This article applies a Panel Vector Autoregressive to capture the dynamization, and heterogeneity. The most exciting results were obtained by dividing the sample into subgroups, which helped the researcher understand each regime's different roles and transmissions. The changes in capital inflows to the non-bank sector will significantly reduce ROE and increase leverage for the next five periods. The results of the study imply that nowadays, bank managers should be aware while the changes in capital inflows change very quickly. Bank managers in countries with high capital inflows must always be aware of changes in capital inflows to the non-bank sector—steps to bank management by diversifying sources of funds efficiently from other parties in the transmission of credit channel.

Historical and legal preconditions for the formation of non-bank financial institutions on the territory of Ukraine

The article analyzes the socio-economic and legal reasons for the emergence of non-bank financial institutions in Ukraine and concludes that it was in the middle of the XIX century formed as part of the country’s credit system. The genesis of the development of non-banking financial institutions, the regulatory framework for their creation and operation has been studied in the following stages, in particular: the emergence of credit cooperatives; the rise of credit and its decline; revival of the non-banking financial sector (with Ukraine’s independence) and the adoption of a number of regulations. It is noted for its long history and peculiarities, which form a modern idea of the non-banking financial sector as a specific type of financial institutions and give impetus to their further development. Financial services markets are an important and integral part of the economy of every state. The article proves that the development of the financial sector, entrepreneurship and the competitive environment in Ukraine lead to the restructuring of all components of the financial market, in particular, the financial services market. Moreover,
 the activity of financial intermediaries is gaining new importance, primarily non-banking financial institutions that meet the needs of economic entities through the provision of a wide range of highly specialized financial services. This leads to an increase in the competitive potential of individual non-bank financial intermediaries, covering the maximum number of consumers at different levels of economic activity. It is determined that the objective preconditions for the emergence in Ukraine in the middle of the XIX century. Non-bank financial institutions were social and economic changes associated with the industrial development of society, characterized by the development of cooperatives, large-scale production, division of labor, enrichment of owners of means of production, landowners and impoverishment of the general population, exacerbation of their economic problems. The needs of ordinary people for additional financial resources to ensure their own existence, to receive financial services to improve living conditions, were the root cause of the non-banking monetary sector.

An evaluation of Egyptian microfinance laws and regulations preventing overindebtedness of women

AbstractThis paper examines the strengths and challenges of the Egyptian microfinance laws and regulations that protect impoverished women from overindebtedness. The focus of the analysis is on the regulation of microfinance in the nonbanking sector, that is, microfinance primarily provided by non‐governmental organizations. Although a number of significant laws and regulations have been enacted that provide some protection from overindebtedness, it was found that these protections do not extend far enough, and some critical protections are absent. This leaves the most impoverished Egyptian women using microfinance, vulnerable to overindebtedness.

Country-level sustainability and cross-border banking flows

PurposeThis paper aims to investigate the association between country-level sustainability scores and cross-border bank-to-non-bank flows within countries.Design/methodology/approachThe authors analyze cross-border banking flows into the real sector firms of 26 developed countries from 2006 to 2017. The authors use a dynamic panel ordinary least square along with an instrumental variable and a generalized method of moments regressions to test the relationship between country-level sustainability scores and cross-border banking flows. Additionally, the authors apply Fama-MacBeth cross-sectional regression and non-parametric portfolio tests to obtain robust results.FindingsThe impact of country-level sustainability scores on cross-border banking flows is positive and significant. This finding is consistent with the signaling theory, which states that a country’s sustainability score is a signal to attract more international fund flows. Notably, the authors deduce that environmental sustainability is more important than the social and governance pillars.Practical implicationsThe findings indicate that the real sector firms located in countries having higher sustainability scores can receive more international bank flows. Consequently, policymakers should focus more on country-level sustainability investments to improve the financing of resident firms.Social implicationsPolicymakers should focus more on country-level sustainability investments to improve the financing of resident firms.Originality/valueTo the best of the authors’ knowledge, no existing study has investigated the signaling function of country-level sustainability scores in the cross-border banking flow conjecture. By investigating this relationship for real sector firms, this study portrays how the non-banking sector can benefit from such a policy that promotes sustainable practices at the country level.

The Role of Non-Bank Financials in the Formation of Long-Term Resources for Economic Growth in Russia

The development of the activities of non-bank financial institutions that accumulate the resources of the national savings system on a long-term basis is seen as a factor in increasing investment in the Russian economy and its growth rates. When carrying out the study, we used general scientific methods, methods of structural, weigh, and dynamic analysis, and comparisons of performance indicators of non-bank financial institutions. Problems in the activities of organizations in the non-banking sector of the Russian financial market are predetermined by the parameters and trends in the development of the socio-economic situation in Russia, including insufficient efficiency of regulatory practices. The positive dynamics of the development of non-bank financial intermediaries is qualified as unstable; it is not supported by the solution of the structural and institutional problems of the Russian economy. In view of this, an increase in their role in the redistribution process is associated both with decisions of a more general order and with the improvement of the regulatory and supervisory practices implemented by the Bank of Russia. The solution to the identified problems in the development of the non-banking segment of the financial market should be aimed at turning it into an effective mechanism for capital formation to ensure economic growth.

ОСОБЛИВОСТІ ФУНКЦІОНУВАННЯ НЕБАНКІВСЬКИХ ФІНАНСОВИХ УСТАНОВ В УМОВАХ ВОЄННОГО СТАНУ

The article examines modern aspects of the development of an important component of the financial sector – non-bank financial institutions in Ukraine. The impact of the financial and economic crisis, caused by the russian invasion, on the activities of insurance companies, credit unions, pawnshops and other non-bank financial institutions was studied. It was determined that the financial sector, as one of the key units of the country's economy, was one of the first to undergo the introduction of a number of changes. If the liquidity of the banking sector is not doubt, then non-banking financial institutions were less ready for the challenges of war. It was determined that the impact of the war on the activities of various non-banking financial institutions was heterogeneous and had its own characteristics. It is noted that the NBU has eased regulatory restrictions for the period of martial law. In general, the functioning of non-banking financial institutions is accompanied by problems with operational activities and business. The war caused a significant decrease in the cash flows of non-bank financial institutions. If at the beginning of the war non-bank financial institutions practically suspended their activities, then starting from the second quarter of 2022 they resumed their activities. It was found that individual financial companies, despite all the negative aspects associated with the aggression of the russian federation, demonstrated a profit, which provided although not significant, but a positive financial result for the sector as a whole. Currently, the war continues, and it is difficult to make clear forecasts of the functioning of the non-banking sector of Ukraine. Accordingly, the stable activity of the financial sector as a whole and its non-banking sector in particular is one of the priority tasks of the government.

The legal particularities of the bank deposits’ accounting

The article encompasses the description of the bank deposits’ characteristics and the analysis of the legal particularities of their accounting. In the first part of the article, the bank’s functions are described, in particular, the bringing in of deposits. Thus, the bank’s role, which defines it, is in ensuring the economic funding by practicing brokerage, by collecting the untouched funds placed as deposits, by processing deposits and by putting the funds to use with loans, this role is achieved in the context of a diversity of heterogeneous activities, many of them being of the non-banking sectors. Therefore, a bank’s main function is the constitution and the usage of bank deposits, the last one representing the main form of mobilization of capital and savings available for the short-term, belonging to legal entities and to individuals. Furthermore, the deposits evolution’s analysis of the first semester of 2021, in the Republic of Moldova, is presented. In the second part of the article, the legal particularities of the bank deposits’ accounting is examined. At last, on the basis of the investigations that were carried out, certain conclusions and recommendations, which would contribute to the bettering of the bank deposits’ accounting, are devised.

Cryptocurrency as a secondary form of manifestation of finance virtualization

Object: Object of the paper is to develop theoretical principles that reveal the content, functions and role of cryptocurrency as new, quite controversial means of settlements appeared in digital society. Cryptocurrency is studied as a secondary form of finance virtualization. The investigation is directed on cryptocurrency’s theoretical and practical aspects of functioning.Methods: The investigation used statistical and economic-mathematical methods to analyze the current trend of development in bank and non-bank payment systems. The authors collected data about legal status of cryptocurrencies, then the obtained data was analyzed according to its official status in developed and developing countries.Findings: It was found that the biggest non-bank electronic payment system PayPal, as a secondary form of virtualization manifestation it currently shows higher growth of rate than the biggest bank card payment system — VISA. The position of cryptocurrencies in National Legal Systems of developed and developing countries was collected and analyzed, according to its legal status. The possible risks and controversial questions of cryptocurrency’s influence on price stability, stability of payment and financial systems are determined.Conclusions: Emergence of cryptocurrency in modern society is the evidence of global digitalization. Virtualization in its primary and secondary manifestation form affects financial sector. Secondary form of virtualization results in non-bank sector development, namely non-bank electronic payment systems (e.g., PayPal) and non-institutional digital schemes of settlements (cryptocurrency). Developed countries are mostly more progressive in cryptocurrency regulation than developing countries. In the case of global cryptocurrency spreading wide there are some risks national economies may face. They include the problem of price stability, the stability of the financial system, the stability of payment systems. Generally, the authors substantiate the requirement for search of the complete definition of cryptocurrency that may be integrated into national legal system for further regulation and risks controlling.

Формування системи стратегічного регулювання ринку небанківських фінансових послуг в Україні

The article highlights the issues of development of non-bank financial institutions as subjects of the aggregate financial capacity of Ukraine and promising directions for increasing the efficiency of their operation. The authors give a comprehensive analysis of development problems accumulated in the process of restructuring the non-bank financial services market in Ukraine and identifies the main ways of their solution on the basis of the сcomprehensive Program of Ukrainian Financial Sector Development until 2025, of the Law of Ukraine “On Amendments to Certain Legislative Acts Concerning the Improvement of Functions on State Regulation of Financial Services Markets”, etc. The paper also emphasizes the need for the adoption of the draft Law “On Financial Services and Financial Companies” № 5065 and related bills: “On Insurance” and “On Credit Unions”. To support the development of the non-banking sector, it is proposed to develop a draft Program for the development of the non-banking financial services market in Ukraine in the medium term, which should be strategically adjusted and based on a holistic integrative model of the rule of law and sectoral legal principles, financial services with relevant approved financial indicators. In particular, the program document should provide for the growth of the role of the market of non-banking financial services in the processes of redistribution of financial resources, their accumulation to solve priority government tasks; constant increase of its capitalization and expansion of the practice of attracting investments with the use of NBFU market instruments etc.

The level of financial inclusion in Ukraine: Measuring access, quality, and usage of financial products and services

While financial inclusion is seen as a goal of socio-economic development, there is still no clear understanding of how to measure it. Following this concern, the paper deals with the computation of the financial inclusion index of the Ukrainian economy using an annual dataset spanning from 2008 to 2020 and following the Sarma methodology. The object of the study is a set of indicators of usage, access and quality of financial products and services. The obtained results demonstrate the medium level of financial inclusion. The improvement of financial inclusion is observed in 2012, 2013, 2020 (namely 0.55 – 0.56 in the range of 0 and 1). From 2015 (0.38) till 2018 (0.39), the revealed downward trend affirms that the withdrawal of banks from the market has deteriorated the level of quality and usage of financial products and services. Financial inclusion declined during the cleaning up of the banking system in 2014–2016, just as it did after the global financial crisis in 2009–2010. Despite the development of the payment infrastructure, there is a need to diversify access, increase quality, and quicken the usage of financial products and services due to existing distrust in national financial institutions. Improving financial literacy and consumer protection, and closing regulatory gaps in the non-banking sector are seen as ways to enhance financial inclusion. Thus, financial regulators should establish an upward trend in financial inclusion that will ensure full access to formal financial services and will not adversely affect the stability of financial system.

Factors Affecting Young Customers’ Saving Intention: An Integrative Review in Sri Lankan Context

Savings in banks or any other financial institution will be a key factor in raising the capital of any economy in the world. It will boost the economic growth when there is a higher savings portfolio in an economy. As a developing country, Sri Lanka looks forward to expanding the economy through the financial system to invest in development programs to mitigate financial shortages. The Central Bank of Sri Lanka is the principal financial institution that controls and oversees the entire financial system of the country through a variety of banking and financial institutions. The Sri Lankan financial system can be categorized as the banking sector, the non-bank finance and leasing sector, key traders, the micro-credit sector and the money brokerage industry. The banking industry in the financial system plays a major role in attracting client’s savings into the economy. Savings can be regarded as income for one person as well as an investment for future benefits. In this paper concentrating mainly on the savings intention of young people or clients in the Licensed Specialized Banks and affecting the factors concerning their intention to save. This study will pay attention on the impact of factors on savings intention of young customers in the given population to identify which factors have more or less effects on each factor. Identifying the impact of each is important to generalize the results of research virtually into the actual working environment. This will be useful for policy-makers, decision-makers or banking strategists to implement new plans and even alter their vision statements.

Developing A Modern Zakat Management Model Digital Technology 4.0 Version

This study aims to develop a modern zakat management model by analyzing the zakat payment method using marketable securities and their impact on zakat fund fluctuations managed by a modern amil zakat institution in Indonesia. Zakat institutions have never implemented the zakat payment transactions like this in other Islamic countries such as Malaysia, Pakistan, and Middle Eastern countries. The study‘s focus is on The National Zakat Board of Indonesia as a modern amil zakat institution that has made this transaction to accommodate muzakki investor‘s goodwill to pay zakat obligation in the form of shares that are still traded. According to fiqh, the payment of zakat using marketable securities in the form of traded shares is still in debate. According to fiqh scholars, Imam Hanafi does not allow the zakat fund investment. While Imam Maliki, Imam Syafie, and Imam Hambali, including Yusuf Al-Qardhawi, allow some arguments. From a financial analysis point of views, to reduce the risk of decreasing zakat funds due to stock price volatility, a linkage between zakat funds in the form of shares traded with general Islamic insurance is needed, which in this case, the researcher refer to as zakat linked takaful under wakalah-waqf contract. This research used literature and empirical study to compare zakat management practices in various Muslim countries, to develop a modern zakat management model collaborated with digital Islamic financial institutions in the banking and non-banking sectors.

Has the Propensity to Pay Dividends Declined? Evidence from the US Banking Sector

This article examines the propensity to pay dividends in the U.S banking sector during 1973–2014. Although the propensity to pay dividends has been declining over the 52 years of our sample period, banks are consistently more likely to pay dividends than non-financial firms. Using the coefficients from logit models estimated early in the sample period to forecast the percentage of dividend payers in each subsequent year, we conclude that there has been a decline in the likelihood of paying dividends in the banking sector. However, the decline started from a very high level as compared to that of the non-banking sectors. In addition, the variables taken from the non-financial firm literature do not explain the difference between the actual and expected percentage of dividend payers in the banking sector. We also conduct exploratory analyses with bank-specific variables. Although newly included variables are significantly related to the likelihood of paying dividends, they do not explain the declining propensity to pay dividends in the banking sector.

Платіжні системи в Україні та ризики їх функціонування

The article is aimed at defining the main aspects of the development of the current state of electronic payment systems in Ukraine and generalizing the main risks of violation of their functioning. The carried out research systematized information on the functioning of payment systems (both internal and international) and forms of payments in Ukraine (cash, non-cash – electronic). Among more than 80 domestic and international payment systems created by banks and non-bank institutions, the National Bank of Ukraine defines the following categories of importance of payment systems in Ukraine in order to ensure their continuous and stable functioning – systemically important, socially important and important. It is determined that in Ukraine at the legislative level, taking into account world trends, the payment infrastructure is being actively modernized, especially in the direction of protection of the rights of financial services consumers in the online space. Along with the advent of new technologies of electronic banking, opportunities to diversify the product range of remote services, atypical threats to traditional banking activities of both the internal and the external nature arise. The research systematizes the key risks inherent in functioning payment systems: legal, financial (total commercial risk, liquidity risk, commercial risk), settlement, operating, systemic. It is determined that the main risk in the banking and non-banking sectors is operational risk – the risk of loss of profit due to errors in the implementation of daily routine financial transactions. Prospects for further research in this direction are to find and implement effective mechanisms for minimizing or preventing risks of electronic payment systems.

Non-Bank Financial Intermediation in the Euro Area: Implications for Monetary Policy Transmission and Key Vulnerabilities

The financing structure of the euro area economy has evolved since the global financial crisis with non-bank financial intermediation taking a more prominent role. This shift affects the transmission of monetary policy. Compared with banks, non-bank financial intermediaries are more responsive to monetary policy measures that influence longer-term interest rates, such as asset purchases. The increasing role of debt securities in the financing structure of firms also leads to a stronger transmission of long-rate shocks. At the same time, short-term policy rates remain an effective tool to steer economic outcomes in the euro area, which is still highly reliant on bank loans. Amid a low interest rate environment, the growth of market-based finance has been accompanied by increased credit, liquidity and duration risk in the non-bank sector. Interconnections in the financial system can amplify contagion and impair the smooth transmission of monetary policy in periods of market distress. The growing importance of non-bank financial intermediaries has implications for the functioning of financial market segments relevant for monetary policy transmission, in particular the money markets and the bond markets.

시스템리스크 대응을 위한 과제와 예금보험공사의 역할 Systemic Risk and the Role of Deposit Insurance Authority in Korea

Korean Abstract: 2008년 글로벌 금융위기 이후 한국은행, 금융감독원, 예금보험공사 등 금융안전망 기구들은 거시건전성 제고를 위한 시스템리스크 대응체계를 지속적으로 정비해 왔지만 해외 주요국들과는 달리 법적 지위를 갖춘 거시건전성정책 총괄기구의 부재, 금융안전망기구들 간 정보공유 부족, 부실화 이전의 정상금융회사에 대한 자금지원체계 미비 등의 문제점은 여전하다.특히, 비은행권 리스크와 업권 간 상호연계성으로 인한 내생적 위험요인이 확대되고 있는 국내금융시스템 특성을 고려하면 위기대응체계 구축에 있어 예금보험공사의 역할이 긴요하다. 최근 COVID-19 팬데믹 선언과 함께 경기부양을 위한 전방위적인 통화･재정 정책이 동원되고 있지만, 실물경기 침체가 장기화될 경우 금융회사 부실로 인한 금융위기 재연의 우려도 커지고 있는 상황이기에 정상금융회사에 대한 자금지원체계 수립이 구체적으로 논의되어야 할 시점이다.English Abstract:Since the Global Financial Crisis in 2008, financial safety nets, such as the Bank of Korea, the Financial Supervisory Service, and the Korea Deposit Insurance Corporation (KDIC) have continued to improve their risk-response systems to improve the macroprudential measures. However, unlike other major countries, problems still remain in Korea; lack of a macroprudential policy authority with legal status, lack of information sharing system among financial safety nets, and lack of funding schemes for financial companies prior to their insolvency.Given the nature of the domestic financial industry, where endogenous risk factors continue to rise due to the risks in non-banking sectors and the interconnectedness among financial sectors, the role of the deposit insurance authority is crucial in building a crisis response system.Recently, with the COVID-19 pandemic declaration, all-round monetary and fiscal policies are being mobilized to stimulate the economy. However, if the economic downturn is prolonged, there will be a growing concern over the next financial crisis that may be triggered by the insolvencies of financial institutions. Therefore, an in-depth discussion should be held on setting up a funding scheme for financial companies.

Local Wisdom as Stimulus for Interest of Young Generation Activators Micro Small and Medium Enterprises Carved Wood Crafts Sector

This study examines local wisdom as a stimulus for the interest of young generation activators Micro Small and Medium Enterprises carved woodcraft sector in Singakerta Village, Ubud District, Gianyar Regency. The development of Micro, Small and Medium Enterprises in Bali and Indonesia in general experienced two main obstacles, namely capital, and marketing difficulties. Capital problems hamper Micro and Small and Medium Enterprises entrepreneurs to expand their businesses and advance class. This problem is very much related to financing access matters. The problem of this research is how local wisdom as a stimulus for the interest of young people driving the Micro and Small and Medium Enterprises in the wood carving sector in Singakerta Village, Ubud District, Gianyar. wood carving sector in Singakerta Village, Ubud District, Gianyar Regency. The current trend shows that access to financing for Micro, Small, and Medium Enterprises is predominantly based on the banking sector. The potential for financing through other sectors is still wide open with a wider access range. Financing through the non-banking sector (cooperatives, leasing, factories, pawning, capital markets), and other types of non-credit financing (grants, equity, insurance) have not been maximized by the government.

DETERMINING THE RELATION BETWEEN THE STATE OF FINANCIAL INTERMEDIARIES AND ECONOMIC GROWTH IN UKRAINE USING VAR MODEL

The article is devoted to determining the relation between the state of banks and non-bank financial intermediaries and economic growth in Ukraine using vector autoregression (VAR) model. We start by analyzing the allocation of financial resources between banks and non-bank financial intermediaries in Ukrainian financial system. Then we build a model, which takes into account quarterly real GDP growth as a measure of economic growth, weighted average interest rates on new loans to residents, quarterly growth of net assets of commercial banks and quarterly growth of assets of non-bank financial intermediaries for the period from the second quarter of 2012 to the second quarter of 2020. The model was also used to forecast the dynamics of stated indicators for the next ten quarters. To determine the impact of changes in the parameters of the model on one standard deviation on GDP growth we construct impulse response functions and to find out how strongly an external shock on some parameters of the model will affect other parameters we build forecast error variance decomposition. It was found that there is higher correlation between assets of non-bank financial intermediaries and GDP, than between GDP and assets of banks. Therefore, the state of non-bank financial intermediaries better reflects the real state of the economy in the country. It is proposed to take this pattern into account by the subjects of state financial monitoring in order to improve the domestic system of prevention and counteraction to legalization (laundering) of the proceeds of crime. For example, statistically significant deviations of the growth rates of assets of non-bank financial intermediaries from the growth rates of real GDP can be interpreted as a sign of the institution’s connection with illegal financial transactions, in particular legalization (laundering) of proceeds of crime, and therefore can be used in the initial stages of detection of illegal financial transactions while screening non-bank sector in order to find sings of such transactions. Keywords: financial intermediaries, banks, non-bank financial institutions, vector autoregression, economic growth.