Loan Portfolio Research Articles

Loan Portfolio Management and Bank Efficiency: A Comparative Analysis of Public, Old Private, and New Private Sector Banks in India

This comparative study analyzed the impact of loan portfolio composition on the efficiency of different types of banks in India—public sector, old private, and new private banks—in the period between 2013 and 2022. Efficiency was evaluated using data envelopment analysis (DEA). The study considered four loan variables—term lending, working capital, priority sector lending, and secured lending in proportion to the overall loans—as independent factors against the efficiency score as the dependent variable, using a random-effects generalized least squares (GLS) regression framework. The results indicate that there were no significant effects on the efficiency of old private banks, except for working capital, which had a marginally negative impact on bank efficiency. Working capital, priority sector lending, and term lending have been found to significantly impact the efficiency of new private banks. Only term and working capital loans significantly affected the efficiency of public sector banks.

Формирование оптимального кредитного портфеля с использованием нечётко-множественного подхода

The problem of profit maximization from lending to a financial organization is considered. A set of loan con-tracts forms a loan portfolio, which makes it possible to use the portfolio theory in the study of the designated problem. We will consider the formation of a loan portfolio as the formation of an investment portfolio. The problem arises of redistributing the funds of the investment portfolio in order to minimize its possible risk and maximize profitability. This problem in classical formulation can be solved according to Markowitz risk diversification. Thus, the problem of risk minimization and profitability maximization from lending to a financial institu-tion can be represented as a fuzzy mathematical programming problem, and more specifically, as a fuzzy linear programming problem. The resulting problem is solved by considering discrete α-levels and is reduced to a set of linear programming problems constructed for each of them. A clear expected optimal solution can be obtained by applying the defuzzification method, which allows you to convert a fuzzy set into a crisp number.

Effect of Digital Marketing on the Financial Performance of Microfinance Institutions in Rwanda

In this study, the effect of digital marketing on the efficiency of microfinance institutions in the Musanze region was specifically examined. The goal was to assess the effect of digital marketing on the financial performance of the selected MFIs in Musanze district. The specific objectives of the study were to examine the effect of Social Media Marketing on performance of MFIs in Musanze district, to analyze the effect of Influencer Marketing on the performance of MFIs, to ascertain the effect of Mobile Marketing on the performance of MFIs, while also assuring the satisfaction of their staff and that they are operating efficiently to increase revenues. The goals also include implementing technology, measuring the effectiveness of microfinance institutions in the nation that have lagged behind in the marketing sector, and identifying the usual digital marketing channels used by Rwanda's microfinance institutions. The probability sampling technique (Simple Random Sampling) was used in conjunction with stratified sampling approach. This study gathered information from 154 employees at 14 microfinance organizations using a quantitative approach. Both descriptive and inferential statistics were used for the data analysis. The binary regression model and SPSS 24 SOFTWARE were also used for data analysis. The study's findings demonstrate that digital marketing significantly improves how microfinance businesses run. According to respondents, Digital marketing's contribution to the expansion of the loan portfolio is frequently considered to be of negligible importance. This study suggests that microfinance institutions can more fully utilize technology to ensure that their daily tasks are done.

The effects of membership expansion on credit union risk and returns

Between 1996 and 2022, regulatory changes led to over a thousand federally chartered credit unions converting to community charters, significantly increasing credit union membership. This study attempts to determine whether these developments improve safety and soundness by enabling credit unions to diversify their loan portfolios, or whether risk increases as the social capital of a tight common bond becomes diluted. We use two-way fixed effects, doubly robust and generalized synthetic control methods with state chartered credit unions and commercial banks as controls to estimate both intent-to-treat (ITT) and average treatment-effect-on-the-treated (ATT) impacts on credit union risk and returns. We find that conversions to community charter unambiguously improve credit union returns but the effects on risk are mixed: liquidity and capital fall, but there is no change in indicators of asset quality. Overall, during the 25-year period from 1998 to 2022, only 1.47% of community-chartered credit unions failed. The results suggest that social capital is no longer an important factor in reducing credit risk in countries with developed financial sectors like the U.S.

On predicting the probability of default of credit organizations in the Russian Federation

Objective: to form a model for predicting the default of credit organizations under the modern conditions of the banking sector functioning.Methods: unidimensional analysis of variance, regression analysis of binary choice models.Results: in the modern economy, the banking system stability largely affects not only the financial sector, but also the economic and investment climate in the country. Understanding of the banks’ influence on the economy necessitates the formation of appropriate effective forecasting systems that allow identifying problem banks before revoking their licenses is necessary. The existing methodology of the Bank of Russia is characterized by subjectivity and inaccuracy of assessment. The analysis of studies on predicting bank defaults showed various approaches to the methodology of assessing the probability of credit institutions’ bankruptcy, though they have a number of shortcomings. Based on the selection of key factors affecting the bank’s financial stability, the logistic regression model for predicting bankruptcy of banks was formed. The methodology proposed in this article includes five predictors, selected on the basis of the improved methodology for selecting logit regression variables, and complements the existing methodologies.Scientific novelty: a methodology for assessing the probability of commercial banks’ bankruptcy in the Russian Federation was developed, which includes five key predictors for assessing the bank’s financial stability: return on assets, unit weight of liquid assets in the balance sheet currency, unit weight of the loan portfolio in the balance sheet currency, share of loans to the real sector in the balance sheet currency, and share of long-term placements in the loan portfolio. The logistic regression model of binary choice proposed in the paper allows distinguishing financially stable credit organizations from problem banks with a forecasting horizon of five months and a classification accuracy of 88,33 %.Practical significance: the relatively high classification accuracy of the model allows its use by the Bank of Russia in controlling the credit organizations functioning, as well as directly by the credit organization’s management, in order to assess the organization’s financial stability and to predict the default probability, as well as to form the bank’s development strategy.

Strategies for effective management of loans: A case study of keystone Bank plc

In this study, strategies for effective loans management using keystone bank plc as a case study was investigated. Survey research methodology was adopted via structured questionnaire containing both open and closed ended questions administered to 120 respondents who were management staff of Keystone bank at both head and corporate offices. Likert scale was used in the questionnaire formulation and Hypothesis was tested using chi square at 0.05 level of significance. The result revealed that corporate loan portfolio diversifications is the most effective technique of loan portfolio management. Also, preference function allows banks compare risky portfolios and rank them according to the degree of satisfaction. Problems encountered with management of loan portfolio were identified to include insider abuse, increased perception of risk regarding the solvency of other banks within the banking system and anticipated decline in the value of the collateral used by the banks to secure the loans. The result obtained indicated that there is significant relationship between loan portfolio management and productivity. It is recommended that Keystone bank should focus on exposure assessment involving the credit review and a valuation of the collateral based on the data provided by the credit applicant. Also, effective risk management based on the risk regarding the solvency of other banks within the banking system should be implemented. Adequate provisions for bad loans that have very little chance of being recovered should be provided. In conclusion, there is significant relationship between loan portfolio management and productivity.

Bank liquidity creation, loan concentration and liquidity risk: a comparative analysis of dual banking system

Purpose Keeping in view the robust growth of Islamic banking around the globe, this study aims to comparatively analyze the association between liquidity creation and liquidity risk for Islamic banks (IBANs) and conventional banks (CBANs) in Pakistan and Malaysia over a period of 2004–2021. The moderating role of bank loan concentration on the aforementioned relationship is also studied. Design/methodology/approach Regression estimation methods such as fixed effect, random effect and generalized least square are deployed for obtaining results. Liquidity creation Burger Bouwman measure (cat fat and noncat fat) and Basel-III liquidity risk measure (liquidity coverage ratio) are also used. Findings The results give us insight that liquidity creation is positively and significantly related to liquidity risk in both IBANs and CBANs of Pakistan and Malaysia. This relationship has been moderated negatively (reversed) and significantly by credit concentration showing the importance of risk management and loan portfolio concentration. Practical implications It is analyzed that during the process of liquidity creation, IBANs in Pakistan faced more liquidity risk for both on and off-balance sheet transactions in the presence of moderation of loan concentration than IBANs in Malaysia necessitating strategic policy-making for important aspects of liquidity risk management and loan concentration while creating liquidity. Originality/value Such studies comparing IBANs and CBANs comparison keeping in view liquidity creation, liquidity risk and loan concentration are either limited or nonexistent.

Climate‐related credit risk: Rethinking the credit risk framework

AbstractClimate change and the challenges associated with the transition to a zero‐carbon economy pose significant financial risks. Climate‐related risks (CRR) indirectly impact banks through their loan portfolios. To examine the integration of CRR into banks' credit risk assessment and monitoring, this article reviews academic and institutional literature using quantitative bibliometric techniques and content analysis of 145 academic documents from policymakers and financial supervisors. A framework emerges that incorporates CRR into credit risk management. We find four thematic areas in the literature: CRR drivers, CRR tools, CRR data and CRR pricing. Overall, uncertainty, non‐linearity, geographic and industrial dependency and non‐reversibility of CRR difficult climate‐related credit risk assessment. Moreover, CRR data present comparability, availability and reliability issues, which Artificial Intelligence can improve. Finally, evidence reveals that current financial prices do not fully reflect CRR. Our findings provide important implications to policymakers for assessing ex‐ante the financial impacts of climate transition regulations, the potential for prudential regulatory action, and the need for supra‐national policies that facilitate access to reliable and comparable climate data.

Achieving Sustainable Development Goals Through Microfinance: An Incremental Steps Towards Growth.

In order to access a brighter and more sustainable future for all by the year 2030 the UN Members have adopted the Sustainable Development Goals (SDGs). The three most important global challenges they tackle are ensuring that everyone lives in peace and prosperity, protecting the environment, and ending poverty. The 17 Goals are critical worldwide development initiatives that balance social, economic, and environmental sustainability. They are all interconnected and interdependent. At present Microfinance Institutions (MFINs) are playing very crucial role to make banking and financial services available for remote people which is contributing directly or indirectly for achievement of SDG. Among four of SDGs, notably No Poverty, Quality Education, Gender Equality and promoting Decent work & Economic growth, and reducing inequality, are closely tied to the concepts of microfinance. Their growth is depicted through increasing Gross loan Portfolio (GLP) in recent years. The purpose of this paper is to look into how these 4 goals can be met in India through microfinance practices. For investigating the linkage between SDG and Microfinance tools like CAGR, Pearson Correlation has been used.

An Analytical Study of the Growth of Loan Schemes in HDFC Bank

Abstract: This study conducts an in-depth analysis of the growth trajectory of loan schemes within HDFC Bank, a leading player in the banking industry. Through an exploration of the diverse loan products offered by the bank, their performance metrics, and the strategic drivers behind their expansion, this research aims to unveil the key factors contributing to the successful growth of HDFC Bank's loan portfolio. Utilizing a combination of quantitative data analysis, case studies, and expert insights, this study provides a comprehensive perspective on the strategies and elements propelling the sustained growth of loan schemes at HDFC Bank

Особливості управління кредитним портфелем та кредитними ризиками комерційного банку в умовах необхідності стимулювання інвестиційних процесів в економіці

The article explores the theoretical and methodological aspects of managing the loan portfolio and credit risks of a commercial bank in the context of the need to stimulate investment processes in the economy. The article considers the essential characteristics of the loan portfolio of a commercial bank and allocates its key features with clarification of their economic content in terms of the qualitative aspect of formation and management of the pool of credit assets. The study examines current approaches to assessing the credit portfolio of a commercial bank, taking into account its key characteristics. Indeed, based on the results of monitoring the quality of the credit portfolio, it is possible to formulate a set of proposals for managing credit assets and assess the adequacy of measures implemented by the bank's management in the face of economic uncertainty to maintain competitive positions on the credit services market. A review of the dynamics of lending to non-financial corporations and households by maturity is carried out through the prism of the potential use of these borrowed financial resources to intensify the investment activity of economic entities.

Following the crowd? Peer influence on voluntary bank audits

AbstractWe examine whether peer audit choices influence a bank's decision to obtain an audit voluntarily. We find that the likelihood of a bank voluntarily obtaining an audit is significantly associated with the audit decisions of peers. The relation is stronger when the peers are more salient due to closer geographic proximity, similarity in loan portfolio, and similarity in size. In addition, we find that peer influence on a bank's audit decision is moderated by the bank's existing level of assurance. Specifically, banks already obtaining a lower level of assurance are less likely to begin an audit in response to peer influence. We also find no evidence that peer influence extends to banks' decisions to cease obtaining an audit. Overall, our findings are consistent with peer influence significantly influencing banks' decisions to begin obtaining an audit.

Analysis of Systemic Risk on the Financial Performance during the COVID-19 Pandemic: The Case of the Colombian Banking Industry

This study seeks to analyze the financial performance of the Colombian banking industry during the COVID-19 pandemic. The frame of reference is based on the concept of systemic risk; concerning this, the pandemic is conceived as an external shock, which impacted the dynamics of the banking industry. To conduct this study, a descriptive-correlational scope is proposed, from which an analysis of different accounting items related to the banking business is made and validated by expert judgment. The analysis horizon covers six years, but the focus is placed on March 2020, when COVID-19 was declared a pandemic by the World Health Organization (WHO). For this purpose, a longitudinal design is proposed, which analyzes the time series describing the behavior of some relevant items in the management of the banking business, such as operating revenue, provisions, interest on deposits and drawings, valuation of trading derivatives, and technology-related expenses. In addition, these items’ correlation with banking establishments’ performance is analyzed. The results of the study show that during the pandemic period, there was a significant increase in the level of volatility in the foreign exchange market, which impacted the operating revenue of banking establishments. It is concluded that, although exchange rate volatility affected the results of the banking industry, the main factor related to the financial performance of Colombian banks is their business itself, i.e., revenue from the loan portfolio and the quality of the loan portfolio. Therefore, systemic risk must be addressed regarding its implications on banks’ main profit drivers, such as portfolio revenue, cost of deposits, and provisions. Based on the above, it is recommended that Colombian banking establishments make greater efforts to diversify their sources of income to reduce their exposure to systemic risk situations.

Effect of Loan Portfolio Management on Profitability of Financial Institutions: A Case Study of Bank of Kigali Plc (2020-2022)

Effect of Loan Portfolio Management on Profitability of Financial Institutions: A Case Study of Bank of Kigali Plc (2020-2022)

Monthly income patterns and earnings management in banking

ABSTRACT This study makes use of 38,070 loan portfolio-month observations in the 2009–2017 recessionary period and investigates whether monthly loan portfolio income distribution patterns can indicate earnings management in banking. We find that discontinuous monthly income patterns throughout the year based on Gini estimations are clear telltale signs of reported income manipulation detected via a Regression Discontinuity Design. We highlight that banks manipulate reported income by varying their loan loss provisions and reversals throughout the year. Specifically, they increase provisioning in the early months and release them towards year-end. This monthly-based strategy is employed by bank managers to influence the annual financial numbers reported in year-end public financial statements. The study contributes to understanding how banks internally manage provisioning on-average within a year, revealing a key mechanism of earnings management in the banking sector. The study fills a significant research gap in the existing literature on bank earnings management, primarily focused on quarterly earnings research.

A, Setiadi The Effect Of Mudarabah And Musyarakah Financing On Profitability Through Non-Performing Finance (NPF) As An Intervening Variable In Sharia Commercial Banks

The purpose of this study is to determine the impact of the non-performing financing (NPF) and mudharabah variable on profitability (ROA) in the context of banks that follow Islamic law. This type of research involves using quantitative data using the technique of data collection via purposive sampling, which is examined using the Smarpls 3 dataset. The study's main focus is on Sharia Commercial Banks' loan portfolio from 2016 to 2022. This study's analysis method employs the partial least squares (PLS) analysis. The study's findings indicate that investments in mudharabah hurt profitability and are not significant, while investments in musyarakah have a positive impact and are significant. While non-performing financing (NPF) has a negative impact and is significant when it comes to return on assets (ROA), margin financing (MF) has a positive impact and is not significant when it comes to ROA and uses NPF as an intervening variable. Keywords: Easyrabah, Musyarakah, NPF, ROA

ANALYZING NON-PERFORMING ASSETS: A COMPREHENSIVE STUDY OF THEIR IMPACTS ON PROFITABILITY OF SELECTED BANKS IN INDIA

The present study explores the complex domain of non-performing assets (NPAs) in a subset of Indian banks. The selected institutions are focal points for comprehending the complex dynamics around non-performing assets (NPAs), as they are representative of a range of sizes and policies. The research provides a comprehensive overview of the current NPA environment by not only estimating the NPAs but also closely examining their features, sectoral distribution, and emerging trends. The study assesses the complex relationship between non-performing assets (NPAs) and the profitability of the chosen banks concurrently, providing detailed insights into the mutually beneficial nature of these components. This in-depth analysis explores the complex world of non-performing assets (NPAs) in a few Indian banks. The selected institutions, which are representative of various sizes and approaches to operations, act as hubs for comprehending the complex dynamics related to non-performing assets. In addition to calculating the NPAs, the study examines their attributes, sectoral distribution, and written from a variety of angles, the study captures the opinions of several writers, each of whom adds a special perspective on non-performing assets. This diversity adds value to the research, generating insights that go beyond scholarly interest to have real-world ramifications for stakeholders, legislators, and bank executives.The research goes beyond conventional financial measures to navigate the difficulties presented by non-performing assets (NPAs), presenting these assets as dynamic obstacles requiring a comprehensive comprehension. The results are intended to help Indias banking industry become more robust and adaptable so that it can deal with the complexities of non-performing assets (NPAs) with skill and foresight. In the end, this study aims to be a symphony of viewpoints, providing a rich tapestry of insights that might help define a stable and sustainable future for Indias banking sector. KEYWORDS: Non-performing Assets, Indian Banking Sector, Profitability Analysis, Bad Loans, Financial Health, Credit Risk,Loan Portfolio, Financial Stabilty,Banking Operations, Risk Assessment, Banking Operations, NPA trends.

Loan portfolio planning and financial performance of Savings and Credits Cooperatives in Uganda: Evidences from SACCOs in Rubirizi District, Western Uganda

Loan portfolio planning and financial performance of Savings and Credits Cooperatives in Uganda: Evidences from SACCOs in Rubirizi District, Western Uganda

CREDIT RISK MANAGEMENT OF “HALYK BANK” JSC: PROBLEMS AND SOLUTIONS

The purpose of the research work is to reveal the essence of the credit risk system, study the causes of its occurrence, and conduct a detailed analysis of the loan portfolio and credit risk management methods on the example of the commercial bank "Halyk Bank of the Republic of Kazakhstan" JSC. The authors analyze the loan portfolio of the bank using CAMELS, Z - score methods and build a regression analysis using R-studio, identify the main problems in credit risk management in a commercial bank and propose some solutions. In this article such problems in credit risk management as incomplete credit risk assessment, weak credit risk monitoring, insufficient collateral assessment, improper risk diversification, insufficient credit risk management policy are identified, and several solutions and methods for their improvement are proposed. The informational approach to solving the set goals is formed based on existing scientific research, published periodicals, scientific articles and financial statements of the bank, and its statistical data is used as material for writing a research paper.

Climate Risks in the Commercial Mortgage Portfolios of Life Insurers: A Focus on Sea Level Rise and Flood Risks

In this paper, we explore the climate risk exposure of U.S. life insurers' commercial mortgage loan portfolios, focusing on sea level rise (SLR) and flood risks. While vast literature and industry reports document the potential impact of climate change on the insurance industry, most focus on the property insurance market. Life insurers hold a significant number of commercial mortgages, representing approximately 15% of their assets by the end of 2021. These investments are susceptible to both physical and transitional risks of climate change and are much less researched or understood. From 2012 to 2019, we find that the size of newly issued commercial mortgages by life insurers in the U.S. grew from $37 billion to $56 billion (by 51%). We find heterogeneity across life insurers in terms of the average loan size, the loan origination frequency, as well as loan locations. In terms of locations, life insurers tend to originate loans in metropolitan areas, many of which are on the coast. Some life insurers focus on specific geographical areas that happen to be exposed to high levels of SLR or flood risks (e.g., Florida), while some diversify across metropolitan areas (coastal or noncoastal) in the U.S. Our findings have important policy implications for regulators and researchers.