Parent Banks Research Articles

Spin-Off Appropriateness Assessment: Propriety Test of Sharia Business Unit Spin-Off to Increase Return on Assets

The obligation to transform a sharia business unit into a sharia commercial bank through a spin-off from its parent bank, a conventional commercial bank, must be balanced with a strategy to increase the return on assets (ROA) of Islamic Business Entities (BUS). A higher ROA ratio correlates with increased profitability. The regulatory provision mandating spin-offs, however, tends to weaken the BUS, making it difficult to compete in the national Islamic banking industry. This is because the spin-off obligation for the UUS can actually diminish its profitability performance. As Watchell has noted, while spin-offs can create differentiation from investment targets in each business, they can also lead subsidiary companies to become more focused in determining their corporate strategy and operations. This focus, however, often results in new operational strategies that increase the subsidiary's operational burden and potentially reduce profitability. Empirically, several sharia commercial banks in Indonesia have experienced a decline in the profitability of their sharia business units after spinning off into independent sharia commercial banks. This research employs normative or doctrinal juridical methods, utilizing both a statute approach and a conceptual approach. As an innovative contribution, the author proposes the Spin-Off Appropriateness Assessment as a model for evaluating the implementation of spin-offs in sharia business units. This assessment aims to increase the ROA ratio and create an investment climate that is environmentally sound. It comprises three main components: fixed capital, non-performing loan identification, and capital sources mapping.

Efficiency of Bank Aceh Syariah and Bank NTB Syariah After Conversion

This study aims to compare the efficiency levels of Islamic commercial banks using the Data Envelopment Analysis (DEA) and Hahslm Reflexivity Dynamics (HEFDYN) methods before and after the spin-off period from 2008 to 2021. The implementation of Law (UU) No. 21 of 2008 concerning Sharia banking requires conventional commercial banks (BUK) to separate their Sharia business units (UUS) and establish Sharia commercial banks (BUS) when the assets of the UUS reach at least 50% of the total assets of the parent bank or after 15 years from the enactment of the Law. This research adopts a quantitative approach and focuses on a case study of two converted banks, namely Bank Aceh Syariah and NTB Syariah. The research methodology involves employing the data envelopment analysis with the VRS approach and the Hahslm Reflexivity Dynamics (HEFDYN) method. Based on the results of the DEA analysis, Bank Aceh Syariah successfully achieved a perfect efficiency value after undergoing conversion, demonstrating effective resource utilization and optimal operational performance. Conversely, Bank NTB Syariah experienced a slight decline in efficiency values, primarily attributable to decreased income variables and financing output in 2019. The HEFDYN analysis also revealed that although Bank Aceh Syariah attained perfect efficiency post-conversion, there is still potential for improvement, particularly in terms of financing growth. Similarly, Bank NTB Syariah, despite the decrease in efficiency values, has the opportunity to enhance its financial performance through targeted improvement efforts. Keywords: efficiency, conversion, DEA, HEFDYN

CONVERSION INTO FULL-FLEDGE ISLAMIC BANKS AND IT’S IMPACT ON ASSET: EVIDENCE FROM INDONESIAN ISLAMIC BANKING INDUSTRY

Objective: This study aims to analyze whether the number of assets differs before and after conversion to an Islamic bank. Theoretical Framework: The theoretical framework provides relevant information on Islamic banking and market structure, which forms the basis for the development of hypothesis. Method: Using regression analysis with dummy variables, the study found differences in assets between the pre and post-conversion periods. Results and Discussion: The findings suggest that conversion could be a recommended approach for the Islamic banking industry in Indonesia to accelerate asset growth. Additionally, it offers an optimal solution for smaller-sized conventional banks as an alternative to spin-offs or mergers. Research Implications: This research provides significant contributions to the study of Islamic banking. This research has the implication that conversion can be an alternative strategy for small parent banks. Originality/Value: Several conventional banks in Indonesia have chosen full conversion into Islamic banks as an exit strategy. This decision is in addition to the spin-off option. Bank of Aceh, Bank of NTB and Bank of Riau Kepri completed the full conversion in 2016, 2018 and 2022, respectively. However, research on Islamic bank conversion is still limited.

Risk Transmission of Foreign Subsidiary in ASEAN Emerging Countries

Research Originality: To the best of our knowledge, this study is the first to investigate the impact of home country parent bank risks on destination country subsidiaries in an ASEAN setting. Moreover, this study adds to the previous literature by using the post-global financial crisis period in ASEAN countries, various types of risks, and dynamic panel data.Research Objectives: This study aims to examine the association between parent and foreign subsidiary banks. The study also examines how bank regulation, national governance, and financial deepening in host countries affect the association.Research Methods: This study uses dynamic panel data of 43 foreign banks operating in ASEAN emerging countries during the period 2010-2018.Empirical Results: The findings indicate a significantly positive association between parent and subsidiary bank risk, particularly for credit and liquidity risks. National governance and bank regulation mitigate the risk transmission. In contrast, financial deepening amplifies the transmission of risks between parent and subsidiary banks.Implications: This finding has important implications, in terms of policy interventions and regulatory mechanisms that national governments can deploy to lower risk exposure of subsidiary banks, while at the same time encouraging foreign investments into the financial services sectors in ASEAN countries.JEL Classification: F30, G21, G32How to Cite:Karyani, E., & Agusman. (2024). Risk Transmission of Foreign Subsidiary: Evidence from ASEAN Emerging Countries. Etikonomi, 23(1), 129 – 146. https://doi.org/10.15408/etk.v23i1.32703.

Seleção precoce de progênies resilientes para produtividade de sementes em populações de soja

ABSTRACT: This study carried out early selection of soybean progenies that are productive and resilient to environmental conditions. The experiment took place at the Genetic Breeding Program of UNIJUI (University of the Northwest of the State of Rio Grande do Sul), located in Ijuí - RS, Brazil. The experiment used augmented blocks design with interim checks. The regular treatments correspond to 24 soybean F2 populations and the common treatments were 18 commercial checks, arranged in four replications. At full physiological maturity, in each experimental unit, five plants were randomly collected to obtain seed weight per plant (SWP, g). The Jinks and Pooni methodology was used to calculate the probability of extracting superior lineages from the evaluated populations. The best control and promising cultivars to compose the parent bank are BMX FORÇA RR, FUNDACEP 66 RR and TMG 7062 IPRO. Jinks and Pooni’s methodology identified populations IRC001, IRC002, IRC017, IRC019, IRC028, IRC030, IRC032, IRC033, IRC035, IRC036, IRC039 and IRC040 as having high potential for extraction of superior lineages.

Implementation of Sharia Business Ethics in Indonesian Sharia Banking (Case Study of Bank BJBS KCP Cimahi)

This articel's goal is to examine and debate the ethical principles that Indonesian Islamic banking practices have adopted as norms, particularly in resolving practical operational issues based on exploratory investigations. Four consumers and three managers of Islamic banks served as the research samples in this study, which was done at Islamic Banking in Cimahi. The analysis's findings suggest three things, all of which are supported by the notion of business ethics: First, Islamic bankers have been successful in forging cordial bonds with stakeholders and customers. Second, they consistently act responsibly while handling difficult situations and uphold high personal moral standards, even in the face of regulatory changes made by the parent bank. These are informal learning opportunities for writers and readers to fulfill their obligations so that they may apply moral principles to organizations. In order to increase the professionalism and operational quality of sharia banking in Indonesia, the author expects that this article will serve as a theoretical and practical resource and guide for regulators and sharia banking practitioners. The results still need to be verified and further generalized because this study's sample size and population coverage are restricted.

Drivers of cross‐border bank claims: The role of foreign‐owned banks in emerging countries

AbstractStudies of the determinants of cross‐border bank claims are based on the economic situations of the lending and borrowing countries—the traditional push/pull factors—but fail to take into account the situation of the international lending banks and the presence of their subsidiaries in emerging countries. They also fail to explain the huge decrease in cross‐border bank flows after the 2008 global financial crisis. In this paper, we analyse the determinants of cross‐border bank claims on a panel of 28 emerging countries and explicitly integrate banking determinants. Thus, we account for the financial situation of international lender banks and the existence of foreign locations in emerging countries as a potential pull stabilising factor. We show that the presence of foreign banks in emerging countries is clearly a factor of attraction for cross‐border bank claims. It remains when we explicitly take into account the 2008 crisis but to a lower extent and in favour of interbank loans. This may be proof of support from the international parent banks to their affiliates. Last, the financial situation of international banks, notably their liquidity and ability to respect prudential rules, also plays a role in their financing strategies in emerging countries.

Central Credit Institution: Forgotten History and Possible Innovations in Modern Conditions

The subject of the study is the historical experience of creating the Central Credit Institution of urban public banks of the Russian Empire and the possibility of its application in modern conditions.The purpose of the study is to develop practical measures to create a special banking association of local banks on the terms formulated by the Bank of Russia for the purpose of discussion with financial market participants, representatives of the expert and scientific community’s.The relevance of the study is due to the request of the Bank of Russia, the Association of Banks of Russia in the search for new approaches to expanding the development potential of local banks through the creation of special banking associations. The United State Archives of the Orenburg Region served as the research location. The research methodology is based on the use of historical and logical analysis methods. The development of the Central Credit Institution of urban public banks at the beginning of the last century was studied in relation to its historical context and various stages of preparation. The surviving justifications, draft constituent documents, draft charter may be of interest when developing specific practical proposals for the creation of a special banking association of modern local banks with them accepting joint liability for each other’s obligations, maintaining partial operational independence and delegating a number of functions to the parent bank. It is concluded that the results of the study can be applied by the Bank of Russia, the Association of Banks of Russia and proactive local banks to develop practical measures for the creation of a special banking association of local banks declared by the Bank of Russia.

Програми реструктуризації кредитів в умовах пандемії коронавірусу: порівняльний аналіз вітчизняної та міжнародної практики

Introduction. Loan restructuring is one of the toolkit for the resolution of problem loans. It directly affects the quality of assets, profitability and capitalization. This credit risk management tool always requires fine-tuning with the involvement of the regulator, as problem loans may be misclassified, namely restructured rather than classified as non-performing, and provisions may be inadequate to the risk, i.e. understated. Problem Statement. In the conditions of a systemic crisis, the probability of defaults on loans increases, and it is extremely important that lenders go to exactly those borrowers who maintain their viability and are ready to resume debt service immediately after the normalization of working conditions. It depends on the position of the regulator to what extent this practice is uniform among banks to prevent distortion of reporting. Along with this, reaching an agreement between the parties is always a difficult process of finding compromises and balancing interests. Purpose. To study the domestic and international experience of commercial banks and banking supervisory bodies in restructuring problem loans for borrowers who have experienced financial difficulties due to the coronavirus pandemic. Methods. The study was conducted by comparing domestic and international practice in the field of credit restructuring regulation and analyzing the disclosure of relevant information in financial statements by banks using the methods of statistical analysis of series dynamics and factor analysis of data. Content analysis was used in the review of scientific publications and reports. Results. The actions of the National Bank of Ukraine on the regulation of credit restructuring can be assessed as palliative, since they do not establish clear rules and do not guarantee the prevention of manipulations by banks, and also do not encourage creditors to grant concessions to borrowers. Banks with foreign capital (of Western countries) were guided by the instructions of the European supervisory authority EBA and the instructions of the parent bank regarding the recognition of the quality of restructured loans. Independent auditors of Ukrainian banks used different approaches to disclosure of information about restructuring in annual reports. In Ukraine, as in most countries of the world, the regulatory body gave temporary consent to the exclusion of restructured loans from the amount of problem loans. The benefit for banks is the ability not to accrue reserves for such exposures. However, the suspension of principal payments did not exempt him from paying interest, and in fact the borrower overpaid for the loan. It seems correct if the regulator would require recognition of the loan as problematic in case of repeated restructuring. Conclusions. The NBU is called upon to summarize the results of the work carried out by banks on credit restructuring and to provide banks with specific recommendations so that the banking sector would be ready for possible new upheavals It is expedient to determine 9 months as the maximum period of moratorium (credit holidays) that can be applied by banks.

Banks as Liquidity Providers in the Interbank Market

Abstract The paper analyzes structural differences in banks' ability and willingness to supply liquidity in the interbank market given the existing prudential regulation using a partial equilibrium model. The results show differences in the Liquidity Coverage Ratio (LCR) effectiveness for two types of banks' business models. First, for the more traditional one (with structural liquidity surplus), the LCR measure enables banks to lend more in the interbank market (by letting them subtract possible cash inflows from the expected outflows under a liquidity stress scenario) but at the cost of allowing them to maintain lower default limits (thresholds on the maximum liquidity shock the banks can withstand without entering default). Second, banks with structural liquidity deficits that need other funding sources than retail deposits, like subsidiaries that receive finance from their parent banks, face tighter requirements on high-quality liquid assets, keep higher default limits and lend less in the interbank market. For this business model, often seen in emerging markets, including Romania, the LCR measure fosters banks' resilience to liquidity shocks. However, this LCR functionality might encourage them to overlook contagion risk from their parent and parent banks' economies, especially under favorable financial conditions. Prudential authorities should complement the LCR measure with other instruments (like liquidity stress test) that better assess banks' liquidity risk due to maturity mismatch. Banks' liquidity risk management can partially mitigate the differences in LCR effectiveness through precautionary holdings of additional liquidity buffers. Banks with higher risk aversion prefer maintaining a higher no-penalty limit (the maximum liquidity shock the bank can accommodate without a penalty fee) and an increased default threshold and are less willing to lend in the interbank market.

Organizational mode choices of multinational banks abroad

We investigate the determinants of organizational modes adopted by multinational banks abroad using a unique database of 98 parent banks and their organizational modes in 169 countries from 2005 to 2015. Our findings reveal that multinational banks operate in various organizational modes abroad, including multiple modes in a single host country; however, subsidiaries are the dominant mode of operation, followed by branches and simultaneously operating branches and subsidiaries in the host country. Furthermore, the characteristics of multinational banks play a significant role in determining their organizational decisions in a host country. Our results indicate that less profitable banks are less likely to open representative offices and are more likely to have branches. In contrast, multinational banks with high asset growth are more likely to operate a representative office abroad and less likely to open a subsidiary. These findings suggest that parent bank profitability and asset growth are important considerations when determining the optimal organizational mode of foreign expansion. Furthermore, country characteristics (particularly openness to economic and capital flows, institutional framework, and geographical and cultural distance) between host and home countries also influence foreign bank operations in a given host country.

Bank affiliation and mutual funds’ trading strategy distinctiveness

This study investigates the effect of commercial bank affiliation on mutual fund trading strategy distinctiveness. We find that bank affiliation has a significantly positive relationship with mutual funds’ unique investment strategies, and this phenomenon exhibits better performance, supporting the benefits of bank affiliation. This association is most pronounced around macroeconomic releases, during high economic policy uncertainty periods, and among funds located within a close distance from their parent bank headquarters. Further analysis indicates that the more talented affiliated fund managers tend to pursue the distinctive strategy. Therefore, our evidence reveals that the underlying mechanisms are that affiliated funds own information advantages or hire more skilled fund managers due to the unique position of commercial banks in the economy. Finally, our results suggest that affiliated funds with a higher Strategy Distinctiveness Index attract stronger net inflows and are less exposed to risks. Our findings remain unchanged after several robustness tests.

Spin-Off Islamic Banking Window In Indonesia

<em>This article provides a discussion of some of the issues associated with Spin Off and areas that have not been critically discussed in the literature. Regulations in Indonesia require all Islamic Banking Windows to separate from their parent banks if the value of their assets reaches 50 percent of the total assets of their conventional banks or at least 15 years after the issuance of the regulation. This study is to find out how the Islamic Banking Windows spin-off is carried out, the reasons, readiness, impact, as well as criticism, suggestions and solutions to the spin-off policy. This qualitative research uses secondary data such as books, journals, articles by describing the spin-off problems comprehensively. We found 2 spin-off methods: establishing a new Islamic Commercial Bank (BUS) or transferring Islamic Banking Windows (UUS) rights and obligations to an existing BUS. A spin-off is important to do so that there is no mixing between conventional and Islamic so that there will be the development of purer Islamic products and increase customer trust and so that management is more independent in accordance with their respective businesses and can develop and compete. We also found a positive impact from the spin-off, namely increasing revenue, and accelerating the development and market share of BUS in Indonesia. The negative impact of spin-offs reduces the level of efficiency, the restructuring has not been properly controlled, the availability of networks and infrastructure is not adequate, and the stress of employees due to different leadership styles, organizational culture, or company orientation. Lastly, we find that UUS is not ready to do a spin-off before 2023 with the main problem, the capital. We suggest that regulators postpone their mandatory spin-off policy by 2023 and suggest other options such as mergers or conversions.</em>

Cultural values of parent bank board members and lending by foreign subsidiaries: The moderating role of personal traits

In this study, we investigate whether the cultural values of a parent bank’s board members affect lending by the bank’s foreign subsidiaries and how this influence is moderated by the board members’ personal traits. Using a new dataset on foreign-owned banks and their parent companies, we find that average individualism, uncertainty avoidance, and indulgence within parent bank boards significantly impact lending by foreign subsidiaries. We establish that different sensitivities of female and male directors modify the relevance of individual cultural dimensions in lending by foreign bank subsidiaries. Moreover, we show that parent bank directors’ cultural values have a stronger impact on lending by the bank’s foreign subsidiaries when those directors have enough time to fulfill their duties and possess higher ownership stakes in the parent companies.

Dealing with Weak Commercial Banks in Restructuring the System of Credit Institutions in Vietnam using Consolidation, Merger, and Acquisition: The Change from Administrative Orders to Market Mechanisms

The analysis and description of the legal framework combined with the assessment of impacts in economic and social aspects show that dealing with a weak bank, whatever the cause is, is an expensive and unpleasant situation, with potential negative impacts on the financial system. Depending on the severity of the weakness, the State takes appropriate intervention measures. Vietnam's economy is characterized by a small scale; commercial banks account for a large number, and have a small scale; these banks' financial potentials are not strong enough to compete with large-scale commercial banks (are usually state-owned or have a control stock) or foreign-invested commercial banks which have both strong financial potential and modern management skills from their parent banks abroad. This is the cause leading to the increase of weak commercial banks that need to be handled to make the market healthy as well as to secure the capital for economic development. Based on the coordinated approach between economics and law, the paper points out limitations when handling weak commercial banks through consolidation, merger, acquisition, or compulsory transfer. To meet the safety requirements and not to cause a breakdown in the restructuring and handling of weak banks, administrative intervention measures through compulsory consolidation, merger, compulsory acquisition, or compulsory transfer are used quite effectively. In the current period, we have solved the weaknesses that need to be handled quickly and decisively. Therefore, organizational restructuring according to criteria of sustainability and market mechanisms should be quickly implemented, especially forming a legal framework allowing foreign investors to participate in mergers and acquisitions transactions in a clear, specific, and highly feasible way as well as research to realize the bankruptcy of commercial banks effectively.

Private Equity and Bank Capital Requirements: Evidence from European Firms

AbstractUsing firm‐level data from 16 euro‐area countries over 2008–2014, we investigate how the performance of bank‐affiliated private equity‐backed companies evolves after the European Banking Authority increased capital requirements for their parent banks. We find that portfolio companies connected to exposed banks reduce their level of investment and experience weaker asset growth, employment growth and profitability following the capital exercise. We further show that the effect is stronger for companies likely to face financial constraints. Finally, the findings indicate that the negative effect of the capital exercise is muted when the private equity sponsor is more experienced.

Uneven regulatory playing field and bank transparency abroad

Motivated by international business research on institutional arbitrage and headquarters–subsidiary relationships, we examine the effect of regulatory distance on multinational banks’ (MNBs) reporting transparency abroad. Using an international sample of foreign subsidiary banks in 46 host countries from 47 home countries, we find that bank transparency declines when the home countries have tighter activity restrictions than the host countries. We bolster the causal inference using difference-in-differences designs that take advantage of banking reforms and cross-border bank acquisitions. We also find that the result is more pronounced when parent banks have lower capital ratios or when host countries have weaker supervisory power, suggesting that parent banks use opaque reporting to conceal risk-taking abroad. Further analysis finds that less transparent subsidiaries are more likely to fail during financial crises. Overall, our findings suggest that regulatory distance creates negative externalities for bank transparency and stability abroad.

Altman Z-Score Model to Analyze Bankruptcy of Islamic Commercial Bank POJK No. 12/POJK.03/2020

This study aims to analyze the financial performance of Islamic Banks BOOK 1 with the existence of Financial Fervices Authority (OJK) Regulation No. 12/POJK.03/2020 concerning Commercial Bank Consolidation which stipulates a bank's core capital of at least IDR 3 trillion in 2022. This study employed the Z-Score data analysis method to predict bankruptcy by taking samples of PT Bank Syariah Bukopin, PT Bank Victoria Syariah, and PT Bank Aladin Syariah Tbk. The results of the Z-Score calculation are used to improve financial performance in order to attract investors and determine a strategy for increasing core capital to comply with the POJK provisions on commercial bank consolidation. Banks can determine the strategy that the author recommends to comply with the POJK provisions, including: 1) Merger, consolidation, or integration 2) Bank takeover 3) Increase in minimum core capital through the issuance of new shares (right issue) for banks that have been listed on the Indonesia Stock Exchange, additional core capital from the parent bank, or exploration of new investors both from within the country and abroad.

Integration culture of global banks and the transmission of lending shocks

We document that a centralization decision-making culture of global banks affects the transmission of shocks from parent banks to their subsidiaries. Using a novel measure of integration culture of multinational banking conglomerates based on the prevalence of a language of power and authority in financial reports, we find that subsidiaries of banks with a relatively more autocratic integration culture cut lending significantly more after solvency shocks to the parent company. Our result is robust to instrumenting integration culture with political and economic factors of the parent bank’s home country.

Regional Expansion of Emerging Market Banks: Evidence from the Middle East

This study investigates challenges and opportunities that regionally expanding emerging market banks face. We focus on four leading Middle Eastern banks’ internationalization trajectories and performances by employing a case study approach. We first examine the four banks’ choices of target markets, entry sequencing, and entry modes over time and then analyze their entry strategies and post-entry financial performances in one of their key markets, Turkey. We show that the success of regional expansion strategies depends on parent bank characteristics such as scale and capital strength, strategic decisions regarding entry mode and timing, and host market structure and competitiveness.