Loan Quality Research Articles

Assessing the Intellectual Capital of Value Creation Process of Commercial Banks in the European Union

Abstract This study examines the impact of intellectual capital on the overall value of commercial banks within the European Union (EU). The research aims to identify how these banks can evaluate and enhance their intellectual capital to improve operational performance. The study employs the value-added intellectual coefficient (VAIC) model to measure the efficiency of three types of capital: structural capital (SC), which is the value added by the company minus human capital; employed physical and financial capital (CE), representing the total financial capital available to the company; and human capital (HC), calculated based on employee costs. Data were sourced from the BankScope database, comprising published financial reports of 599 commercial banks. Control variables included loan quality, fund utilization ratio, and the impact of the COVID-19 pandemic. The research identifies a significant positive correlation between financial capital, human capital, and the value-added function of banks. These findings suggest that financial and human capital are critical determinants of value addition in commercial banks within the EU. This study uniquely focuses on the intellectual capital performance of EU-based banks. To the best of our knowledge, such a comprehensive analysis on this subject within the context of EU banks has not been previously conducted.

The Role of Good Corporate Governance in Stock Price Determination: Evidence from BRI

Corporate governance refers to the mechanisms and processes that direct and control a company to ensure its operations are efficient and aligned with its objectives. In the context of BRI Bank, the corporate lending program poses a significant risk to its financial stability, especially amidst the ongoing economic crisis. The deterioration in the quality of non-performing loans (NPLs) has implications for evaluating asset and debt risk quality. This study employs a quantitative research method to measure data and generalize the results from a sample to the broader population. The sample consists of BRI Bank companies for the period 2017–2023. A census technique is applied, and the data is analyzed using panel data analysis to assess the relationship between corporate governance and stock prices. The findings reveal that good corporate governance has a significant effect on stock prices when considered collectively. However, when the corporate governance variable is examined individually, it does not show a significant impact on stock prices. These results suggest that while good corporate governance contributes to stock price performance in a combined context, its isolated effect is not as pronounced. The findings highlight the importance of comprehensive governance practices in influencing financial outcomes, particularly in the face of economic challenges.

Revealed Wisdom of the Crowd: Bids Predict Loan Quality

Revealed Wisdom of the Crowd: Bids Predict Loan Quality

Determinants of sustainable growth of commercial banks: Does lending growth matter?

This study addresses a crucial aspect of the banking sector, sustainable growth, which is vital for the long-term viability of banks yet has rarely been studied. This study examines the factors affecting the sustainable growth of commercial banks and whether lending growth matters. The study uses panel data regression method with the generalized least squares and generalized method of moments with secondary data from the entire population of all listed commercial banks in Indonesia for the years 2013-2022 with a total of 399 observations. The novelty of this research is to examine the determinants of sustainable growth of commercial banks in Indonesia, including the lending growth encompassing periods of prior, during, and post-pandemic COVID-19. The results show that previous sustainable growth significantly influenced current sustainable growth, banking performance, lending growth, and capital, whereas liquidity and inefficiency had negative impacts. Contrary to previous research, loan quality had an insignificant effect, which was due to the new relaxation policy by the Indonesian Financial Services Authority to lessen the pandemic COVID-19 impact until 2024. Banks and regulators should understand the determinants of sustainable growth and be mindful of the adequacy of loan loss provision expense since it is not as ample as prior to the relaxation policy period. Future research to expand to ASEAN countries is recommended since the loans-to-GDP ratio in Indonesia is quite low and to understand the effect of different relaxation policies by different regulators.

Can We Use Financial Data to Predict Bank Failure in 2009?

This study seeks to answer the question of whether we could use a bank’s past financial data to predict the bank failure in 2009 and proposes three new empirical proxies for loan quality (LQ), interest margins (IntMag), and earnings efficiency (OIOE) to forecast bank failure. Using the bank failure list from the Federal Deposit Insurance Corporation (FDIC) database, I match the banks that failed in 2009 with a control sample based on geography, size, the ratio of total loans to total assets, and the age of banks. The model suggested by this paper could predict correctly up to 94.44% (97.15%) for the failure (and non-failure) of banks, with an overall 96.43% prediction accuracy, (p = 0.5). Specifically, the stepwise logistic regression suggests some proxies for capital adequacy, assets/loan risk, profit efficiency, earnings, and liquidity risk to be the predictors of bank failure. These results partially agree with previous studies regarding the importance of certain variables, while offering new findings that the three proposed proxies for LQ, IntMag, and OIOE statistically and economically significantly impact the probability of bank failure.

Cultural diversity and bank credit allocation

ABSTRACT This research explores the relationship between regional cultural diversity and bank lending to innovative firms. Ordinary Least Squares results reveal that banks in culturally diverse areas are more likely to lend to innovative businesses compared to those in less diverse regions. This relationship holds when using the number of mountains as an instrumental variable estimator. The effect is stronger in regions with greater cultural inclusiveness, more effective formal institutions, or more stable economic policies. Additionally, banks enhance financial performance without compromising loan quality through this lending approach. Overall, the findings highlight the crucial role of cultural diversity in shaping lending relationships.

Market Power in Banking

Bank market power, in both loan and deposit markets, has important implications for credit provision and for financial stability. This article discusses these issues through the lens of a simple theoretical framework. On the asset side, banks choose the quality and quantity of loans. On the liability side, they may be subject to depositor runs whenever they offer demandable contracts. This structure allows us to review the literature on the role of market power for credit provision and stability and also highlight the interactions between the two sides of banks’ balance sheets. Our approach identifies relevant channels that deserve further analysis, especially given the rising importance of bank market power for monetary policy transmission and the rise of the digital economy.

An integrated analysis of key financial metrics driving commercial bank performance in Cambodia

This study aims to systematically identify and analyze key financial metrics that influence the performance of commercial banks in Cambodia. Utilizing 2023 data from the National Bank of Cambodia across 59 banks, the research adopts an explanatory framework based on cross-sectional data analysis. Findings reveal a statistically significant positive correlation between Non-Performing Loans (NPLs) and Return on Assets (ROA), suggesting effective NPL risk management by Cambodian banks, contrary to traditional financial theory. Loan Growth (LG) does not significantly impact ROA, indicating that external factors like market conditions and loan quality are more critical. Furthermore, Market Share (MS) has no significant impact on ROA, suggesting that market share may not be a critical determinant of bank performance in Cambodia. A significant negative relationship is observed between the Loan to Deposit Ratio (LDR) and ROA, suggesting that higher LDRs expose banks to liquidity risks and reduced profitability. Both Loan Loss Provision (LLP) and Cost to Income Ratio (CIR) negatively affect ROA, while the Effective Tax Rate (ETR) shows a marginally positive relationship. The Net Interest Margin (NIM) significantly impacts ROA, underscoring the importance of managing interest-earning assets and liabilities. Recommendations include investing in advanced risk management frameworks, enhancing loan quality, maintaining a balanced LDR, utilizing technology for cost efficiency, focusing on effective tax planning, and optimizing NIM through competitive pricing. Future research should explore additional contextual factors that affect profitability dynamics in the Cambodian banking sector.. Keywords: Commercial Banks, Financial Metrics, Return on Assets (ROA), Non-Performing Loans (NPLs), Loan to Deposit Ratio (LDR), Cost to Income Ratio (CIR), Effective Tax Rate (ETR), Net Interest Margin (NIM), Loan Growth (LG), Market Share (MS).

Sacco Based Financial Characteristics and Financial Performance of Deposit Taking Savings and Credit Co-operative Societies in Kenya

In Kenya, Deposit-Taking Savings and Credit Cooperative Societies have faced significant challenges that have adversely impacted their financial performance. While existing literature has linked financial performance to financial characteristics, there remain conceptual and contextual gaps in empirical research. These gaps prompted the current study to examine SACCO-based financial characteristics as a tool for enhancing the financial performance of DT-SACCOs in Kenya. The study employed a descriptive research design, targeting a population of 190 DT-SACCOs. Using purposive sampling, 181 SACCOs that had been operational since 2018 were selected for analysis. Secondary data from the period 2018 to 2023 were utilized, and a quantitative approach was applied to generate both descriptive and inferential statistics. Panel regression was used to estimate the direct relationship between SACCO-based financial characteristics and financial performance, while also appraising how the Sacco Societies Regulatory Authority risk regulations moderated this relationship. The study concluded that capital adequacy had a statistically significant positive effect on financial performance, indicating that stronger capital buffers enhance profitability. In contrast, asset quality and financial investments showed statistically significant negative effects, suggesting that poor loan quality and mismanaged investments negatively impact financial outcomes. Liquidity, however, was positively associated with financial performance, underscoring the importance of maintaining adequate liquidity reserves. Moreover, the relationship between SACCO-based financial characteristics and financial performance was significantly moderated by SASRA risk regulations, highlighting the critical role of regulatory oversight in shaping financial outcomes. Based on these findings, the study recommends that DT-SACCOs in Kenya should: maintain optimal capital adequacy levels to safeguard financial stability; prioritize careful asset quality management and regular loan monitoring to develop sound lending policies; optimize financial investments to ensure sufficient funding for operational expenses; and maintain adequate liquidity levels to meet financial obligations and improve overall performance.

Mergers and Acquisitions in the Banking Sector: A Systematic Literature Review

Mergers and acquisitions (M&A) have developed into a powerful strategic tool for consolidating banks to boost their capital bases, grow their businesses and bring about financial stability. Since the 1990s, the number of M&As has dramatically increased around the globe. This study attempts to provide a systematic review of recent M&A literature that has examined the different themes of M&As and their impact on the performance of the banking sector with an emphasis on 2013–2023. The objective of the study is to identify the important research gaps and provide direction for future research. Thus, it shows the past and recent status of M&A literature worldwide. The review has identified different themes of M&As, which include financial and operating performance, integration of technology, geographic strategies, corporate governance, cross-border M&As, size of banks, shareholders’ return, risk and loan quality, expertize and ownership. The findings indicate that research on M&As from the financial and operating performance perspective provides inconclusive results. Recently, research on cross-border M&As and integration of technology has been increasing as it provides a competitive edge to the acquirer. Results also suggest that the market considers the merger news positively for target banks, and geographic diversification and hiring financial experts in M&As improve the performance of the banks.

PENGARUH KARAKTERISTIK UMKM TERHADAP KUALITAS LAPORAN KEUANGAN DENGAN SELF EFFICACY SEBAGAI PEMODERASI

This study aims to understand the factors that affect the quality of loan proceeds for students who use self-efficacy as a moderating model. The data collection technique uses a quantitative survey method that is derived from providing a silent and timely questionnaire to 117 respondents who are students at UMKM Nasabah BTPN Syariah, with the results being analyzed using a Likert scale. Based on data analysis using the regression analysis technique with interaction, alat uji PROCESS SPSS 27. It appears that the trade owner's discernment, the employees' recognition, and the business's life span positively affect the quality of the SAK EMKM credit portfolio. Then again, accounting information negatively affects the quality of SAK EMKM's money exchanges. The relationship between the owner's, operator's, and long-term commerce recognitions and the quality of the business's budgetary portfolio is not influenced by self-efficacy. Self-efficacy adjusts the relationship between mindfulness and mindfulness.

THE IMPACT OF THE COVID-19 PANDEMIC AND ECONOMIC CRISIS ON THE PERFORMANCE OF LICENSED COMMERCIAL BANKS IN SRI LANKA

Sri Lanka faced an array of incidents starting from the Easter Sunday attack in 2019 to COVID-19 pandemic and the Economic Crisis which caused disastrous effects on the economy. Despite the policy measure taken, the banking sector was severely affected by soaring Non-Performing Loans (NPLs) levels and dwindling profits. Therefore, the main objective of this study is to evaluate the impact created by the series of adverse economic and social issues from 2019 on the performance of the banking sector in terms of profitability and NPLs using a sample of 12 licensed commercial banks. The data were collected from secondary sources such as annual reports issued by the banks and the Central Bank for the period 2013-2022. The impact of the Easter attack, Pandemic, and Economic Crisis are referred to using a dummy variable, inflation, Gross Domestic Product (GDP) growth rate, and interest rate are used to measure the impact of the macroeconomic environment on the banking sector performance and capital adequacy ratio was used as a control variable. Return on Equity, Return on Assets, and NPLs were used to measure the bank's performance. The results of the random effects panel regression models suggest that there is a significant impact of the Pandemic, Economic Crisis, and GDP growth rate on the performance of the banking sector. This research indicates that a country like Sri Lanka needs to take aggressive policy measures to face these adverse situations. It is required to take credit risk mitigation measures and provide quality loans to curtail the adverse impact caused by the NPLs.

Determinants of Bank Profitability and Implications for Company Value with Moderating Dividend Policy

The research is quantitative and the objective is to determine the internal (Loan Quality, Third Party Fund, Managerial Efficiency) and external (BI Rate, Inflation) variables that determine Bank profitability, and the impact of this profitability on company value by moderating the Bank's stock dividend policy. The method used is panel data regression and moderated regression analysis using Eviews 10. The data used is secondary data with a sample of 10 Book 4 banks listed on the Indonesian Stock Exchange for the 2011-2020 period. The results obtained are first Loan Quality, Third Party Funds, Managerial Efficiency, Bank Indonesia Interest Rates and Inflation Rates simultaneously have a significant and positive effect on Banking Profitability, second Banking Profitability partially has a significant and positive effect on Company Value and third Banking Profitability which is moderated by Dividend Policy partially has a significant and positive effect on Company Value

Enhancing Corporate Performance through Debt Financing: Evidence from Nigerian Consumer Goods Firms

Background: Consumer goods firms play a significant role in any economy, like other businesses, require a mix of financing methods to amplify their performance. Aim: The study examined enhancement of corporate performance of Nigerian Consumer Goods Firms through debt financing for a period of eleven (11) years from 2011 to 2022. Methods: The data obtained were estimated using descriptive statistics and panel regression model of fixed effect. Results: The study found a positive and significant impacts of long-term debt (β=0.469729, P=0.0311) and firms’ size (β=0.154547, P=0.0251) on the performance of Nigerian consumer goods firms’ but negative and significant impacts of loan quality (β=−0.037431, P=0.0241) and short-term debt (−0.023417, P=0.0124) on their performance. Recommendation: The study recommends financing through Long-term debt for businesses in Nigeria.

Emerging from the Storm: Forecasting Bank Loan Quality in the Aftermath of COVID-19

Emerging from the Storm: Forecasting Bank Loan Quality in the Aftermath of COVID-19

A proposal for a composite indicator based on ratios (CIBOR) to compare the evolution of Spanish financial institutions

This paper introduces a new Financial Stress Indicator (FSI) named Composite Indicator Based on Ratios (CIBOR). This paper discusses the importance of monitoring the quality of loans and capital, operational performance, profitability, and liquidity of financial institutions to prevent systemic risks in the financial system. To address this, CIBOR is proposed as a means to indirectly capture the instability of a financial entity by identifying potential tensions and their underlying causes. Specifically, we compare the results for 25 financial entities operating in the Spanish banking market, analysing the evolution since 2018 to 2022. CIBOR permits a straight interpretation of the variations between periods and a dynamic analysis that not only measures the variation between the ratios over time, but also identifies the sources of such variations: variations derived from changes in sub-indicators, changes stemming from the oscillation of the baseline, and the impact of the selection of weights in the construction of the composite indicator.

Assessment of Credit Running Scheme on Abay Bank, Wolkite Branch, Ethiopia

This study of evaluation of loan and advanced management systems. It aimed to designate the position of loan and advance management in financial institutions such as commercial banks, micro finances and others. Thus, the rationale behind undertaking this study was to investigate loan and advance management problems and suggest possible solutions that enable the bank to run its manoeuvre most safely, as loans and advances are known to be the mainstay of all banks. The ability of banks to frame and adhere to policies and procedures that promote loan quality and curtail non-performing loans is the means to endure stiff competition. Incapability to create and build up quality loans and credit-worthy customers leads to default risk and bankruptcy and hampers a country's economic growth. However, according to the researcher, a study must be conducted to evaluate loans and advanced management systems at the Abay Bank Wolkite branch. The study's main objective was to assess the loan and advance management system of Abay Bank in the Wolkite branch. Both primary and secondary data are used for the study. Primary data was collected using questionnaires. The secondary data was collected from published and unpublished documents. Descriptive statistical tools are used to analyze the data collected. Hence, the nature of the study was descriptive. Finally, based on the findings, possible conclusions and recommendations were given.

The impact of payday alternative loans on credit union performance and loan quality

AbstractFederal regulators in 2010 amended lending rules to allow federal credit unions (FCU) to originate short‐term, small‐dollar amount loans, with an annual percentage rate of up to 1000 basis points above the otherwise imposed interest rate ceiling of 18 percent. The purpose of the change in policy was to allow FCUs the ability to provide their members with an alternative to payday loans. We find the decision to originate these higher‐interest loans is primarily influenced by the characteristics of a credit union's environment. Credit unions located in minority neighborhoods and in markets with fewer traditional financial services are more likely to participate in the payday alternative loan program. Participation in the program is shown to improve earnings performance without adversely affecting participants' loan quality. These results suggest credit unions can provide lower‐priced alternatives to payday loans that are beneficial to members and their credit unions.

The Effect of Financial Literacy on Loan Repayment Performance of MSMEs: A Literature Review

Credit loans among MSMEs are beneficial for business sustainability. The quality of a credit loan is a concern to avoid default, so the topic of loan repayment performance is interesting to explore. This study summarizes and analyzes several previous studies related to the topic of the influence of financial literacy on business performance among MSMEs, as well as the influence of financial literacy on loan repayment performance. Based on a literature study conducted, financial literacy was found to have a significant influence on business performance and loan repayment performance among MSMEs. This study found gaps in previous research, there are still limited studies that provide a comprehensive framework explaining how financial literacy influences loan repayment performance directly or through business performance variables. Therefore, it is important to research further, how an MSME manager who accesses credit to run his business can achieve optimal business performance, where the results will be used for loan repayment. This research proposes business performance as a mediating variable that could be considered in future research. Keywords: financial literacy, business performance, loan repayment performance

Risking or de-risking? The effect of banking competition on large state-owned banks and small and medium-sized enterprise lending: Evidence from China

This study examines the effect of the expansion of small and medium-sized bank branches on large state-owned banks in China based on bank branch-level financial data and detailed loan-level data from 2008 to 2015. We find that the expansion of small and medium-sized banks favorably impacts the operating income of large state-owned banks without intensifying bank risk-taking. Large state-owned banks, used to lack competition, expand their total lending scale to achieve more operating revenue by servicing more firms, especially small and medium-sized enterprises (SMEs). This promotes SMEs' access to finance, while also raising the operating costs of large state-owned banks. More importantly, the lending standards and loan quality of large state-owned banks do not deteriorate, implying that they do not employ risky lending tactics to deal with increased competition.