Asset Quality Research Articles

The Effect Of Economic Growth, Local Original Income And Equalization Fund On Capital Expenditure (Study On District/City Local Governments In Indonesia)

Capital expenditure is a budget expenditure for the acquisition of fixed assets and other assets that benefit more than one accounting period, including expenditures for maintenance costs that maintain or increase useful life, and increase capacity and asset quality. This study aims to examine the effect of Economic Growth, Local Original Revenue, and Balancing Funds on Capital Expenditure in District/City Regional Governments in Indonesia in 2022 both partially and simultaneously. This research uses quantitative methods, using secondary data obtained through the website of the Directorate General of Financial Balance and the website of the Central Statistics Agency. The sampling technique uses the purposive sampling method with a total sample of 218 District/City Regional Governments in Indonesia in 2022. The data analysis method in this study used multiple linear regression analysis. The results of the study show that the variables of Economic Growth, Regional Original Income, and Balancing Funds simultaneously affect Capital Expenditure. Partially, Economic Growth does not affect Capital Expenditure, while Regional Original Revenue and Balancing Fund affect Capital Expenditure.

CEO Overconfidence and Bank’s Asset Quality: The Role of Board Gender Diversity

CEO Overconfidence and Bank’s Asset Quality: The Role of Board Gender Diversity

Unveiling the Effects of COVID-19 on the Efficiency of Nigerian Banks

This study investigated the impact of COVID-19 on the efficiency of Nigerian banks. The study especially examined the effects of COVID-19 on the capital adequacy ratio (CAR), asset quality, management quality, earning potential, and liquidity of Nigeria's money deposit banks (MDBs) both before and after the outbreak. The project employed a longitudinal survey research approach. Data was taken from the banks under study's audited financial statements for the years 2017 through 2020. The descriptive statistics of percentage and bar charts were utilised in analysing the financial figures while the Sample T-test and the Wilcoxon Statistical Test were used via SPSS in testing the formulated hypotheses. Following a series of empirical tests, it was discovered that banks' capacity to generate money and the quality of their assets both increased more during the COVID-19 epidemic. The outcome also demonstrates that banks' capital adequacy (CAR), management effectiveness, and liquidity were most significantly impacted by the COVID-19 problem as their values declined in comparison to before the epidemic. Consequently, the study recommended that banks should plan and prepare for eventualities like that of the COVID-19 in the future so as to be better prepared in innovating new measures to run and sustain their operations in the face of such eventualities.

THE EFFECT OF BANK-SPECIFIC AND BANK RISK ON BANK STABILITY AS MEASURED BY NPL OF THE BANGLADESHI COMMERCIAL BANK

This paper analyzed the effects of bank-specific and bank-risk drivers on bank stability as measured by non-performing loans(NPL) of commercial banks in Bangladesh from 2011 to 2021.This study used panel linear regression, and panel corrected standard error (PCSEs) to estimate the model. The main objective of the study was to analysed the effects of bank specific and bank risk on bank stability of conventional banks in Bangladesh. Capital adequacy, asset quality, income diversification, bank competition, managerial efficiency, and profitability (ROE) are used as proxies for bank-specific and liquidity risk; Sensitivity to marketing risk is used as proxies for bank risk, while control variable is used as bank size and non-performing loan (NPL) are used as a proxy for measurement of bank stability. The main results show that capital adequacy and profitability (ROE) are negative, but asset quality, income diversification, bank competition, and managerial efficiency are positively related to the NPL. The results further evaluate those determinants of bank risk, liquidity risk, and marketing risk have a positive impact on the NPL. The control variable bank size has a negative impact on the NPL. Based on our results, authorities in Bangladesh may develop rules for managing operations and ensuring bank stability as measured by NPLs.

A Delve into the Implementation of Data Quality Framework on Very Large Databases

In today’s data-driven landscape, the reliability and accuracy of information are paramount for informed decision-making and operational efficiency. A robust data quality framework provides a structured methodology for managing and maintaining the quality of data as-sets throughout their lifecycle. It in-troduces a comprehensive data qual-ity framework encompassing four key pillars: data governance, data profil-ing, data cleansing, and data monitor-ing. The foundation of the framework lies in establishing clear data governance policies and procedures, defining owner-ship, responsibilities, and accountability for data quality across the organization. Data profiling techniques are then em-ployed to assess the quality of data, iden-tifying anomalies, inconsistencies, and inaccuracies. Subsequently, data cleans-ing processes are implemented to rec-tify these issues, employing techniques such as deduplication, standardization, and validation to ensure data integrity. Continuous data monitoring is integral to the framework, enabling proactive de-tection of data quality issues and facil-itating timely corrective actions. Ad-vanced analytics and machine learn-ing algorithms may be leveraged to au-tomate monitoring processes, flagging anomalies and deviations from prede-fined quality thresholds.

Membangun Partisipasi Pemda Aceh Utara pada Penyusunan Qanun Tentang Pengelolaan Aset Daerah

The qanun design process refers to Aceh Qanun Number 5 of 2011 concerning Procedures for Forming Qanuns. Article 22 of the Qanun states that the community provides verbal/written input in forming the Qanun. North Aceh Regional Government participation and community input on the draft revision of regional property management qanun was carried out through Focus Group Discussions (FGD). Existing Qanuns related to Regional Property must be adjusted to Government Regulation 28 of 2020 concerning the Management of State or Regional Property. This activity was carried out as a Focus Group Discussion (FGD) with stages of material delivery, question and answer, and interviews. This activity aims to obtain input on the draft qanun regarding managing goods owned by the North Aceh Regency area. Participants in this activity are government elements, community leaders, academics, and NGOs. After the FGD was carried out, the draft qanun was revised based on input to perfect the raqan, including the need for perfect administration of regional property from the planning stage to destroying assets belonging to the North Aceh Regency region. Apart from that, it is necessary to maintain and secure regional property so that the value and quality of assets are always maintained. Then, a good understanding is needed for regional property managers so they can carry out management properly and correctly by the mechanisms provided by law.

Manifestations of loan growth – profitability and non-performing loans – a study of the Indian banking sector

PurposeAfter half a decade of balance sheet clean-up prompted by the Reserve Bank of India’s (RBI) asset quality review (AQR), Indian banks are back on track for increased loan growth. Being a financial vehicle for the economy, loan growth cannot be put on hold for a long period of time. But it is also important to understand that loan growth carries an inherent risk of default. A trade-off exists between loan growth, non-performing loans (NPLs) and bank profitability. Our study highlights the importance of understanding this relationship.Design/methodology/approachFor our study, we have taken a sample of India’s private and public sector banks. The dataset consists of the financials of our sample for the period 2006–2021. Two-step differenced generalized method of moments (SYS-GMM) estimation has been used to establish the relationship. The mediating role of NPLs in the relationship between loan growth and profitability is examined by the mediation analysis using structural equation modeling (SEM) and the Sobel test. We have used Stata 16.1 for the analysis of our dataset.FindingsThe findings of our study suggest that bank lending is a major contributor to the bank’s earnings. Loan growth after a certain point has a negative impact on profitability, and it also adds to the NPLs of the bank. The study result indicates that moderate loan growth is key to steady and stable growth in the Indian banking industry.Practical implicationsOur study is directed toward understanding the positive and negative manifestations of loan growth. We develop a framework to understand this relationship and then empirically prove it. The study is beneficial for employees and policymakers alike to minimize the negative impact of loan growth.Originality/valueThe issue of the simultaneous impact of loan growth on NPLs and profitability has not been studied in the Indian banking sector. Also, this study adds to the present literature by studying the mediation effect of the NPLs on the loan growth and profitability relationship.

Mediating Effect of Human Capital on the Correlates of Corporate Governance, Credit Administration on Asset Quality: Evidence from Ghana Financial Industry

It is essential to understand the variables that affect asset quality because of their implications on the risk to financial institutions and for financial supervision and financial stability. There exist empirical studies establishing significant relationships between corporate governance and asset quality, and credit administration and asset quality. What was missing that this study investigated based on Ghanaian financial institutions was the mediating role of human capital. Based on a correlational research design and randomly selecting financial institutions and their employees as respondents. The study resulted that human capital fully and significantly mediates the relationships between corporate governance and asset quality, and credit administration and asset quality. Therefore, human capital elements of the knowledge, skills, and experience of the board members and employees are fully critical in the attainment of good asset quality. The study recommends that financial institutions must fully include the level of the human capital of their employees and board members when evaluating the factors that must exist to ensure that they have good asset quality.

PENGARUH PROFITABILITAS, ASSET QUALITY, CAPITAL STRUCTURE DAN MARKET RESPONSE TERHADAP KOMPENSASI EKSEKUTIF SEKTOR PERBANKAN YANG TERDAFTAR DI BURSA EFEK INDONESIA TAHUN 2015-2019

The purpose of this research is to determine the impact of profitability, asset quality,capital structure and market response on executive compensation of 33 banks sector in Indonesia Stock Exchange period 2015 -2019. Financial Performance of banks used in this study is Profitability measured by Return On Asset (ROA), Asset quality measured by Non Performing Loan (NPL), capital structure measured by Capital Adequacy Ratio (CAR), and Market Response measured by Price Earning Ratio (PER). The result of this study showed that Profitability (ROA) has a positive significant to executive compensation, Asset quality (NPL) and Capital structure (CAR) has no significant effect on executive compensation. While market response (PER) has a negative significant to executive compensation.

The Impact of M&A on Acquirers’ Financial Performance Across the Banking Industry - Case Study of the Gulf Cooperation Council 2017–2022

Objectives: The paper attempts to empirically assess the consequences of mergers and acquisitions (M&A) on acquirer banks' post-acquisition financial performance amongst the member banks of the Gulf Cooperation Council (GCC) region. This study explores M&A's impact on critical financial indicators such as profitability, operational efficiency, asset quality, and risk management, from the perspective of GCC banks operating from 2017 to 2022. Methods: A secondary data design was employed to better ascertain how acquirers in the GCC banking industry perform after M&A. The design is characterized by collecting the performance data and conducting statistical analyses (descriptive analytics, and Kolmogorov-Smirnov, Shapiro-Wilk, and Wilcoxon Signed-Rank tests) using the SPSS tool to draw inferences. Conclusion: The research found that there is a negative impact on the performance measures of the acquirer following an M&A. However, with the exception of the size and age of the firm, this impact is statistically insignificant. To understand the performance measures that are impacted by the M&A. This research also explores the various external factors that influence the impact of M&A on performance measures. The insights from this study can be used by stakeholders when acquiring organisations to obtain a clear understanding of the possible impacts of an M&A on the organisations' performance. This paper contributes to exploring the diverse factors that may influence the impact of M&A on the performance of the acquirer, including the size of the sample, transaction model, accounting policies, and observation period. This differentiates this study from the majority of the existing research where the focus is on performance only.

Insolvency and Bankruptcy Code: Policy Implications on Asset Quality, Bank Stability and Bank Performance

Insolvency and Bankruptcy Code: Policy Implications on Asset Quality, Bank Stability and Bank Performance

The Influence of Digital Payment Implementation on Banking Stability in Indonesia (A Study on Conventional Banks in Indonesia Listed on the Indonesia Stock Exchange)

This study aims to investigate the influence of digital payments on the stability of conventional banks listed on the Indonesia Stock Exchange (IDX). Additionally, the research will delve into the role of banking asset quality and liquidity as control variables that may regulate the relationship between digital payments and financial stability. In examining the relationship between digital payments for MSMEs and financial system stability within the conventional banking system listed on the IDX from 2012 to 2022, the research begins by measuring digital payments and banking system stability. Sampling is conducted using purposive sampling, resulting in a collection of 27 conventional banks. The data analysis method for this research includes descriptive analysis, instrument tests, classical assumption tests, t-tests, F-tests, and hypothesis testing using multiple regression analysis. The research findings indicate that ZScore, return on assets, and return on equity have a positive effect on the stability of conventional banks in Indonesia, using Non-Performing Loans and Loan to Deposit Ratio as control variables. Thus, this study supports and strengthens previous research.

Informational role of investment and liquidation values

We develop a credit-risk model to study the informational role of investment in an economy susceptible to large liquidity shocks. Firms' investment decisions carry information about their asset quality, thereby mitigating informational frictions when firms enter bankruptcy. An increase in aggregate investment can reduce the informational value of investment, depressing firms' recovery values. Therefore, policies boosting investment can decrease debt and firm values by reducing the informational value of investment. The presence of debt overhang may enhance firm value by making firms' investment decisions more informative. We present suggestive empirical evidence consistent with model predictions on the relation between firms' investments and recovery rates.

IMPACT OF COVID-19 ON THE FINANCIAL STABILITY OF COMMERCIAL BANKS IN KENYA

<p>Countries worldwide were gripped by the COVID-19 pandemic for the greater part of 2020 and 2021. COVID-19 spread to virtually all nations around the globe, causing a contraction of the global economy, and Kenya was no exception. Governments worldwide deployed social distancing, lockdowns, and curfews, which resulted in employee lay-off, business closure, and suppressed demand for commodities and services, eventually trickling down to commercial banks. The Kenyan banking sector experienced deterioration in asset quality which has been worsening since 2014 when it stood at 5.6 percent, reaching an all-time high of 14.5 percent in 2020 whereas Return on Assets which has also been declining since 2014, stood at 4.46 percent dropped to a record low of 2.07 percent in 2020 during the pandemic. This study, therefore, sought to determine how the financial stability of Kenyan commercial banks has been impacted by the COVID-19 shock. The study sought to specifically establish how both Z-score and capital adequacy of Kenyan commercial banks were impacted by the COVID-19 pandemic. Financial intermediation theory, Capital buffer theory, and Financial Instability Hypothesis anchored the study. The research design embraced was non-experimental, while the financial stability proxy was Z-score. The study’s target population was 19 commercial banks in Kenya between the years 2015 and 2022, which had complete data on all the study variables. Annual bank-level data was obtained from Kenya`s Central Bank`s annual supervision reports from 2015-2022. Event study methodology was used while collecting data whereby, the event window was 2020-2021, the period before the event (COVID-19) was 2015-2019, and the period after the event was 2022. The study espoused a panel vector autoregression model in data analysis where the impulse response functions were generated. The researcher discovered that the COVID-19 pandemic adversely impacted Z-score and capital adequacy. Based on the research findings, the Government of Kenya ought to institute non-disruptive pandemic control measures such as proper hygiene and wearing of masks as opposed to quarantines and lockdowns, which are detrimental to commercial banks' operations and other businesses, ultimately leading to a decline in income for commercial banks. Moreover, since capital acts as a shock absorber for banks, Kenyan commercial banks should strive to achieve and maintain the minimum capital adequacy ratios set by the Central Bank of Kenya. This will ensure that commercial banks in Kenya cushion themselves against economic shocks generated by pandemics such as COVID-19.</p><p> </p><p><strong>JEL:</strong> E44, E58, G01, G21, G28, G32</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/edu/0227/a.php" alt="Hit counter" /></p>

Commercial banks’ capital structure and performance in Vietnam: Panel data model approach

The study delves into the factors that influence the capital structure of commercial banks in Vietnam. Capital structure, measured by the net debt-to-asset ratio, is a key indicator of bank leverage. The study uses pooled OLS, fixed effects, and random effects models to analyze the impact of factors such as net interest-earning rate, Corporate Income Tax rate, and liquidity on commercial banks’ profitability and their capital structure. Data from 26 banks during the 2010–2022 period in Vietnam was collected for the analysis. The results indicate that factors such as Tax, ROA, growth, and liquidity have significant impacts on the capital structure of the banks. Specifically, Tax has a beta coefficient of –0.05967, ROA has a beta of –0.01796, growth has a beta of 0.000509, and liquidity has a beta of –0.00045. The study found that ROA, Tax, and liquidity are negatively related to the capital structure of Vietnamese commercial banks, meaning that an increase in these factors leads to a decrease in the banks’ total debt-to-total assets and vice versa. The empirical results suggest that commercial banks can manage their capital structure through these factors to reduce their debt-to-asset ratio, resulting in reduced credit risk, improved asset quality, and increased business efficiency. However, lowering the debt-to-asset ratio may also lead to reduced profits from lending activities, particularly when interest rates are high.

EFFECT OF DEPOSITS AND NON-PERFORMING LOANS ON BANK PROFITABILITY – A CASE STUDY ON CONVENTIONAL COOPERATIVE BANK OF BARODA REGION

The banking sector plays a vital role in providing essential financial services, facilitating the allocation of funds to productive ventures, and aiding in the implementation of government fiscal and monetary policies. Historically, Non-Performing Assets (NPAs) have posed significant challenges for banks, but reducing NPAs has now become a top priority. The strength of a nation's economy relies heavily on the health of its cooperative banking sector. This study analyzes the non-performing assets (NPAs) of The Pragati Co-operative Bank Ltd. over a six-year period from 2017-18 to 2022-23. The research examines various aspects related to NPAs, including gross NPAs, net NPAs, provisions made towards NPAs, loans and advances, deposits, and relevant ratios such as net NPA ratio, provision coverage ratio, and credit-to-deposit ratio. The data analysis reveals that the bank maintained a zero net NPA throughout the period, indicating effective provisioning strategies. While gross NPAs fluctuated, the provision coverage ratio remained strong, suggesting the bank's ability to withstand asset quality pressures. The study also investigates the relationship between gross NPAs and net profits using correlation and regression analysis, finding a positive correlation but minimal significant impact of gross NPAs on profitability. Overall, the research highlights The Pragati Co-operative Bank Ltd.'s proactive approach to NPA management, financial stability, and adaptability to changing market conditions.

Review Paper- “A STUDY ON INTROUDUCTION TO THE BANKING SECTOR IN INDIA”

The banking sector in India plays a pivotal role in the country's economy, acting as a backbone for financial intermediation and economic growth. Over the past decade, the sector has witnessed significant transformation driven by regulatory reforms, technological advancements, and changing consumer preferences. The banking sector in India is a critical component of the country's economy, serving as a catalyst for financial inclusion, economic growth, and development. This abstract provides a concise overview of the key aspects shaping the Indian banking landscape. It highlights the regulatory reforms undertaken by the Reserve Bank of India (RBI) to strengthen the sector's stability and resilience, including the implementation of Basel III norms and the introduction of frameworks like Asset Quality Review (AQR) and prompt corrective action (PCA). The abstract also emphasizes the transformative impact of digital technologies on the banking sector, driving innovation, enhancing customer experience, and expanding access to financial services. Furthermore, it discusses the challenges faced by Indian banks, such as non-performing assets (NPAs) and stressed assets, and the initiatives undertaken to address these issues, including the insolvency and bankruptcy code (IBC). Despite challenges, the abstract underscores the significant growth opportunities in the Indian banking sector, fueled by demographic trends, urbanization, and increasing financial literacy. Overall, the abstract suggests that while the Indian banking sector faces both opportunities and challenges, it remains a dynamic and integral part of the country's economic landscape, poised for continued evolution and growth. Keywords – Banking Regulation, Reserve Bank of India (RBI), Financial Inclusion, Digital Banking, Insolvency and Bankruptcy Code (IBC).

The impact of Covid‐19 on banking groups’ balance sheets in the euro area

AbstractMost studies have found that the Covid‐19 pandemic did not negatively impact the euro area banking industry's performance at an aggregate level. This study explores whether this finding still holds using the return on assets of 16 banking groups operating in the euro area and considering bank‐specific factors, idiosyncrasies related to different exposures of their portfolios to the business cycle and weaknesses stemming from underlying structural vulnerabilities. The banking groups are classified into clusters using unsupervised learning techniques. This research contributes to the empirical literature on the determinants of banks’ performance by highlighting the importance of banks’ heterogeneity, notably controlling for differential performance due to asset quality, solvency and business model. In addition, this paper shows that the magnitude of return on assets’ exposure to the business cycle varies across banks and that inflation in the euro area matters only for a subset of them. Importantly, the study sheds some light on the possible reasons for the mixed results in the literature regarding the role of non‐interest income, the T1 capital ratio and inflation. Finally, no significant effects of the Covid‐19 variables on banks’ return on assets are found during the first seven quarters of the pandemic.

Creation and Legal Status of a Specially Authorized Body of Non-Banking Financial Services

The article is devoted to the peculiarities of state regulation in the market of non-banking financial services. At the same time, attention was paid to the creation of a specially authorized state body in the form of the National Commission for Control of the Market of Non-Banking Financial Services. The purpose of the article is to reveal the legal status, the order of formation, and clarify the main principles of the National Commission's activity. Achieving the outlined goal became possible thanks to the use of a complex of methods of scientific knowledge, in particular, the dialectical method (for comprehensive knowledge of the nature of the National Commission for Control over the Market of Non-Banking Financial Services), the formal-legal method (for establishing the content of legal norms), the formal-logical method (for identification of shortcomings in national legal regulation), comparative legal method (for studying the experience of other countries and determining the prospects for implementing their principles of activity in the national legal field). It has been studied that the special status of the commission is that it ensures the stability of the entire non-banking financial system of Ukraine, establishing the requirements that such institutions must meet, namely requirements for: liquidity, solvency, capital, asset quality, risk level of operations, profitability. The work examines the relationship between the commission and the National Bank of Ukraine, their cooperation in the market, which consists in the development of regulatory and legal acts and their approval. The need for the National Bank of Ukraine to delegate its powers to the National Commission for Control of Non-Banking Financial Services in relation to: registration of market participants, licensing of non-bank financial institutions, determining the procedure for issuing and canceling a license, approving the terms of operation of such institutions. In view of this, a new model of state regulation on the market of non-banking financial services was proposed in the form of concentration of all control functions on the market in a single operationally independent regulator - the National Commission for Control of Non-Banking Financial Services, which is in close cooperation with the National Bank of Ukraine and by the National Securities and Stock Market Commission. Also, the article emphasizes that regulation by the National Commission for Control of the Market of Non-Banking Financial Services should be complemented by a system of self-regulating participants in the market, which are an additional tool to state regulation.

Research on Optimization of Financial Performance Evaluation of Energy Enterprises under the Background of Low-Carbon Economy

The development of human society and the production and operation activities of enterprises have brought about global warming, resulting in frequent natural disasters. It has become the consensus of all countries in the world to develop a green and low-carbon economy. Under this background, enterprises, as the main body of economic activities, especially energy industry enterprises, should optimize and upgrade the traditional production and operation mode with high pollution, high consumption, and low output to a high-efficiency and low-pollution mode, and pay attention to the co-ordinated development of economic benefits, social benefits, and ecological benefits. Financial performance evaluation indicators have become the main basis for senior leaders of energy industry enterprises to make decisions and evaluate the low-carbon economic benefits of enterprises. This paper constructs a set of financial evaluation index systems of energy industry enterprises under the background of a low-carbon economy from four dimensions: profitability, asset quality, debt risk, and business growth. The analytic hierarchy process (AHP) is used to measure the comprehensive contribution of financial indicators of low-carbon production and operation. The purpose of this study is to provide scientific financial management decisions for energy enterprises to reduce costs and increase the efficiency and low-carbon operation under the background of a low-carbon economy. The research results show that the comprehensive evaluation index system after the traditional financial evaluation index of energy industry enterprises is integrated with the evaluation index of a low-carbon economy can help enterprises make more correct and effective financial decisions in the process of survival, development, and growth, and, at the same time, the financial evaluation index of a low-carbon economy should pay more attention to the indicators with a higher comprehensive contribution, so as to effectively promote the low-carbon operation efficiency of enterprise production, management, and sales. Compared with other research results, this paper innovatively constructs a financial management decision-making index system for measuring the low-carbon operation of energy enterprises in theory, which has important value in guiding energy enterprises to reduce costs and increase the efficiency and low-carbon operation in practice.