Resilience Of Banks Research Articles

Interrelationship of deposits and borrowings with capital adequacy ratio empirical analysis of Indian banks

Banks garner deposits from public and the funds so raised are employed in lending and other operations to generate profits for the entity. As deposits constitute major share of bank funds and are raised from public at large, it is imperative that banks maintain adequate capital funds with capital adequacy ratio (CAR) to ensure security of deposits and confidence of population in banking structure. In addition to deposits, banks also employ borrowings to generate business funds. Capital in banks symbolizes the soundness and resilience of banks being a cushion against potential losses. When asset quality deteriorates due to environmental or business factors, capital comes to rescue to absorb losses. This saves the liability components of deposits and borrowing provided capital has enough absorption capacity measured in relation to riskiness of assets. This capacity is measured by Capital to Risk Weighted Assets ratio, a proportion of capital funds to risk adjusted assets. The objective of study is to examine the association which exists between CAR and how it is impacted by other two elements neighbouring it in the liability side of bank balance sheet viz. share of deposit in total liabilities and share of borrowing in total liabilities. Forty Indian banks have been included in study, twenty each from category of Government owned public banks and banks in the private sector. The study has shown that the percentage share of deposit has negative relationship with CAR and so depositors have to be wary of the availability of requisite capital in banks’ books to guarantee their safety. The share of borrowing has, however, opposite effect. The results are of significance for bank management.

Islamic Bank Resilience: Financial and Sharia Performance During Covid-19 Pandemic in Indonesia

This study investigates the resilience of Islamic banks during the Covid-19 pandemic using indicators of financial and sharia performance. The sample consists of 13 out of 14 Islamic banks registered with the financial services authority (OJK). One sample was excluded due to incomplete annual report data. The data assembled ranged from 2018, two years before Covid-19 until 2020 during the pandemic. Furthermore, the mean difference test was carried out on financial and sharia performance by comparing data before and during Covid-19. The results showed that during the pandemic, the financial performance proxied by capital adequacy ratio, non-performing financing, and financing to deposit ratio was higher, while profitability showed a decrease. Meanwhile, sharia performance, which reflects sharia principles and social values increased. Both performances were not significantly different when the data before and during the pandemic was compared. Therefore, Islamic banks show resilience when a crisis, specifically Covid-19 occurs.

Effect of COVID-19 on non-performing loans in China

We examine the resilience of Chinese banks during the COVID-19 pandemic by investigating non-performing loan (NPL) ratios. We find that despite the reduction in the growth rate of total bank lending, bank NPL ratios significantly increase during the COVID-19 crisis. Banks with high-quality capital are more effective in controlling their NPL ratios during the Crisis. Big Five banks, state-owned banks and domestic banks have lower NPL ratios than their counterparts during the Crisis.

Predicting the mediating effect of resource orchestration on the relationship between leadership strategy and the resilience of Kenyan Listed Banks

The objective of this study was to quantitatively assess the mediating effect of resource orchestration on the relationship between leadership strategy and organisational resilience of banks listed in the Nairobi Securities Exchange with an objective to contribute to knowledge production in the Global South using Kenya as the vantage point. The study applied a correlation research design, and data was gathered from a stratified random sample of 184 senior managers drawn across the 12 listed banks, wherein Likert-scale questionnaires were administered to the research participants online. Partial Least Squares Structural Equation Modelling was deployed for data analysis using SmartPLS software. Results showed that the mediated path explained 79.1% of the variance in organisational resilience (R2=0.791). The results were validated with a Sobel test that found a significant partial mediation in the model with Z=6.380 (p<0.05). The study inferred a strong and statistically significant mediation power of resource orchestration in the leadership strategy-organisational resilience nexus. Resource Orchestration Pecking Order was proposed as an outcome of the empirical analysis, and future research directions were suggested.

Testing The Resilience of Sharia Bank During Covid-19 Pandemic

The purpose of this study was to test the resilience of Islamic banks in Indonesia facing Covid-19 which has not shown humility. The resilience of financial institutions, including Islamic banks, is needed so that the stability of financial institutions can be maintained. Several macroprudential policies have been implemented. The research method uses quantitative methods with the Primary Component Analysis technique. The research model refers to the theory of economic evolution. There are stages of bank resilience, starting from the normal stage, persistence and adaptability. The data used was secondary data with data sources from the OJK for performance indicators of Islamic banks with a total of twenty provinces in Indonesia. Data related to the covid-19 pandemic uses data from covid19.go.id. Based on the results of the study, there was a decrease in bank resilience due to Covid-19 pandemic. West Java Province is the province with the highest relative bank resilience score compared to other provinces, with a resilience score of 6.35. Meanwhile, from the results of the KMO test and Bartlet's Test the research data is feasible to use with the KMO value of each normal scenario, persistence and adaptability are greater than 0.05 and Bartlet's Test is significantly (sig = 0.000).

Are Islamic banks more resilient to the crises vis-à-vis conventional banks? Evidence from the COVID-19 shock using stock market data

The debate regarding the performance of Islamic banks vis-à-vis conventional counterparts has attracted growing attention recently. Exploiting the Covid-19 health and economic crisis as an exogenous shock, we extend this debate by examining the resilience of Islamic banks vis-à-vis conventional banks during this shock. Using data from the Gulf Cooperation Council member states, we find stock market investors have not assessed the Islamic banks to be superior to conventional ones during the Covid-19 market meltdown. Specifically, our findings show Covid-19 confirmed cases, government social distancing policies and feverish period (i.e., 24 February to 17 March 2020) have had negative impact on stock returns of both Islamic and conventional banks alike. Interestingly, the adverse impact of social distancing policies is stronger on Islamic banks due to their inherent higher cost structure. Additionally, we find the marginal adverse impact of Covid-19 shock is weaker on banks with higher liquid assets holdings on the onset of the Covid-19 shock. Moreover, larger banks were hit harder during the first quarter of 2020, however, they also recovered more quickly during the second quarter. Results are robust with alternative estimation methods, matched sample of Islamic and conventional banks, cross-sectional analysis with fever period and extended sample period.

Level of Bank Health, Growth Rate and Banking Value in Indonesia

This study aims to explore the soundness, growth rate and value of banking in Indonesia. This study also compares the level of soundness, growth rate and value of Islamic banks and conventional banks. This research is interesting and important to do, because as a country with the largest Muslim population in the world, the Islamic banking sector is the main solution to help the economy in an Islamic way. However, the use of Islamic banking services by the public is still not optimal. Meanwhile, Islamic banks are proven to be able to survive the global economic crisis. The motivation underlying this research is that different perspectives in the management of the two types of banks affect the level of bank resilience in facing the crisis. It is proven that when there is a global crisis, Islamic banks are more resistant to testing and survive. This study examines the development of corporate governance in an in-depth Islamic perspective for Islamic commercial banks and compares it with corporate governance in conventional banks. The Islamic context in doing business is very different from the conventional business context. Therefore, it needs to be developed separately based on the concepts of monotheism. The research provides input for the development of models for the application of Islamic Corporate Governance. Another benefit in this study is the level of public acceptance of Islamic banking services, which are carried out. The research output is an empirical model for developing the Islamic Corporate Governance index. The research provides additional input for similar research that are still theoretically reviewing.

Bank resilience over the COVID-19 crisis: The role of regulatory capital

Using COVID-19 as an exogenous shock to the banking system, we implement the Difference-in-Differences method to empirically evaluate the role of the regulatory capital in strengthening the resiliency of bank lending activities during the crisis period. Our results suggest that banks with a higher level of regulatory capital ratio prior to the COVID-19 shock lend more resiliently to the real economy during the crisis than those with lower regulatory capital ratios ex-ante. It implies that the recent reforms on bank regulatory capital have effectively built up bank strength which in turn helped banks continue lending to the real economy during the COVID-19 crisis.

The importance of technology in banking during a crisis

What are the implications of information technology (IT) in banking for financial stability? Data on US banks’ IT equipment and the background of their executives reveals that higher pre-crisis IT adoption led to fewer non-performing loans and more lending during the global financial crisis. Empirical evidence indicates a direct role of IT adoption in strengthening bank resilience; this includes instrumental variable estimates exploiting the historical location of technical schools. Loan-level analysis shows that high-IT banks originated mortgages with better performance, indicating better borrower screening. No evidence points to offloading of low-quality loans, differences in business models, or enhanced monitoring.

Determinants Analysis of Islamic and Conventional Banks Systemic Risk Potentiality: A Preliminary Study

Abstract This study aims to analyze the determinants of systemic risk in Islamic and conventional banks. The population of this research is Islamic and conventional banks, which are listed on the Indonesia Stock Exchange. Researchers used purposive sampling to ensure the suitability of the sample with the research objectives. Furthermore, we use secondary data obtained from financial databases such as Yahoo Finance and the Indonesia Stock Exchange. This study adopts the systemic risk measurement offered by Fiordelisi and Marquez-Ibanez (2013). The determinants of systemic risk were explored from the six independent variables, namely the bank efficiency, business model, size, interest rate, GDP, and bank categories (Islamic or conventional). Data analysis was performed with panel data regression. The results indicate that size is the critical factor in determining potential systemic risk for banks, both Islamic and conventional banks. This study contributes theoretically in constructing theoretical frameworks related to the stability and resilience of Islamic banks in comparison with conventional banks. Practically this study seeks to produce recommendations for improvement of Islamic banking financial governance as an alternative to conventional banking.

The Importance of Technology in Banking during a Crisis

What are the implications of information technology (IT) in banking for financial stability? Data on US banks' IT equipment and the background of their executives reveals that higher pre-crisis IT adoption led to fewer non-performing loans and more lending during the global financial crisis. Empirical evidence indicates a direct role of IT adoption in strengthening bank resilience; this includes instrumental variable estimates exploiting the historical location of technical schools. Loan-level analysis shows that high-IT banks originated mortgages with better performance, indicating better borrower screening. No evidence points to offloading of low-quality loans, differences in business models, or enhanced monitoring.

The Comparison of The Islamic and Conventional Bank Performance before and During Covid-19 Pandemic in Indonesia

This study aims to determine and compare the financial stability of banks during the crisis which is still being debated by taking the period before and after the covid 19 pandemics. This study uses a sample of all transactions of conventional banks and Islamic banks throughout Indonesia that are recorded by the Indonesian financial services authority. With a population of all conventional financial institutions and Islamic financial institutions, both registered and unregistered by Indonesian financial services authorities throughout Indonesia. The type of data in this study is secondary data sourced from the Indonesian financial services authority. To find out and compare the performance of conventional banks with Islamic banks and the resilience of conventional banks and Islamic banks to shocks, an analysis of the financial behavior of data in commercial banks was carried out using Threshold Autoregressive. We find that Islamic banks tend to be more stable in facing financial challenges due to the COVID-19 pandemic compared to conventional banks. The performance of conventional banks was very good in the period before the COVID-19 pandemic. However, when the coronavirus pandemic began to be reported, there was a huge decline in performance. Conventional bank recovery efforts have not been able to return to the original track. Conventional bank performance is slowing down and it tends to be difficult to return to its original performance value (before the COVID-19 outbreak). However, from the graph of performance forecasting between Islamic Commercial Banks and Conventional Banks, it can be seen that there is a difference in performance stability between Islamic Commercial Banks and Conventional Banks facing the COVID-19 pandemic.

Does risk governance mediate the impact of governance and risk management on banks’ performance? Evidence from a selected sample of Islamic banks

PurposeRelying on the agency theory and the financial intermediation theory, the purpose of this paper is to examine to what extent risk governance would improve corporate governance and risk management effectiveness. The paper especially investigates the mediating role that would have the risk governance mechanisms in explaining both of the following relationships: the corporate governance–the banks’ performance, and the risk management–the banks’ performance.Design/methodology/approachThis research uses the Baron and Kenny’s (1986) approach to investigate the mediating effect of risk governance; besides, the study refers to structural equation modeling in carrying out the appropriate panel regressions. The data collection was based largely on Bank scope Database, but some missing qualitative data were gathered manually from the banks’ annual reports available on the banks’ websites.FindingsThe study findings illustrate the significant role of risk governance mechanisms in improving both corporate governance and risk management’s effectiveness. Especially, this paper finds that risk governance is fully explaining the corporate governance–bank performance relationship, but risk governance would explain partially the risk management–bank performance relationship. Further, findings suggest that the internal corporate governance mechanisms seem to be more relevant than the external ones in improving the sample bank performance, and that risk management mechanisms seem to impede rather the sample bank performance.Practical implicationsThe findings would make an important contribution to the current debate on the need to reinvent the optimal organization of the bank’s board and directorates and would allow readers to develop more cost-effective governance and risk-management thinking. Besides, the findings may help bank deciders and boards to rationalize costs and to focus only on the relevant corporate governance and risk management mechanisms. Finally, findings might illustrate to regulatory instance the importance of recommending risk governance in their coming corporate governance guidance.Social implicationsThe global credit crisis of 2008 caused significant difficulties to financial institutions, so it would be worth enlightening practitioners and policymakers, even regulators, on the importance of considering the level of potential risk and risk monitoring as a key component in the decision-making process, to strengthen the stability and resilience of banks in an increasingly uncertain environment.Originality/valueThe issues raised in the paper are important in that Islamic banking is an integral part of the global banking and finance industry. This paper extends the knowledge of the potential importance of the new concept of risk governance with specific reference to Islamic banking industry peculiarities. It also provides a telling illustration of the need for the enhancements of the Basel Committee’s prudential requirements as well as the accounting and auditing organization for Islamic financial institutions and Islamic Financial Services Board set out especially regarding the consideration of risk in the strategic decision process.

Does macroprudential policy alleviate the adverse impact of COVID-19 on the resilience of banks?

This paper examines the resilience of banks as perceived by market participants during the COVID-19 crisis. We analyse how bank stock returns during January–March 2020 relate to the pre-crisis activation of macroprudential policy across 52 countries in a cross-sectional dimension. We find that, overall, a tighter macroprudential policy stance is beneficial for bank systemic risk, as assessed by equity market investors. A robust finding is that a perceived decrease in bank risk stems primarily from the use of credit growth limits, reserve requirements, and dynamic provisioning. By contrast, a pre-crisis build-up of capital surcharges on systemically important financial institutions seems to lower bank stock returns. Alternative bank risk indicators suggest that the latter is likely to be driven by concerns about profits rather than the probability of default.

The Impact of Changes in Basel Capital Requirements on the Resilience of African Commercial Banks

Focusing on a panel sample of 41 commercial banks over the period of 2000-2018, this study examined the effect of capital adequacy on the resilience of commercial banks in Africa under changing Basel levels (II, III, and the proposed Basel IV). The study created sample representative banks for the proposed Basel IV and used two measures, namely Z-score and CAMELS, to capture bank resilience. Using the panel logistic regression and fixed effect model, we found that capital adequacy, liquidity, earnings management efficiency, and macroeconomic conditions are key determinants of the resilience of commercial banks in Africa. Additionally, Basel compliant banks tend to be less prone to macroeconomic factors. Based on the positive and significant impact of all Basel capital ratios on Zscore, the results suggest that a high level of capital requirements increases African banks' resilience, and banks with higher capital can absorb risk exposures.

Capital and asset quality implications for bank resilience and performance in the light of NPLs’ regulation: a focus on the Texas ratio

Based on a sample of 63 listed European banks, this paper investigates the relationship of capital and asset quality, in terms of provisioning and coverage policies, with bank risk and performance during the period 2005Q1-2018Q4. Our results point out different relationships between risk-based and non-risk-based measures of capital with bank risk and performance profiles. In particular, the information content of the leverage ratio appears to be merely related to the bank dimensional feature, whereas the total capital ratio shows a positive and statistically significant relationship with bank stability and is also negatively related to insolvency risk, thereby suggesting a crucial role for capital for the overall bank resilience. In addition, more capitalized banks are associated with higher bank performance. Regarding asset quality, hefty coverage and provisioning policies are generally associated with both lower bank resilience and performance. These results are relevant for disentangling the implications that the regulatory overhaul set out to address the NPLs issue is having on banking activity.

The Resilience of African Banks in the COVID-19 Crisis: A Study on the Macroprudential Stress Test of Banks in the WAEMU Zone

The Resilience of African Banks in the COVID-19 Crisis: A Study on the Macroprudential Stress Test of Banks in the WAEMU Zone

The Financial Crisis in the 2000s: Further Effects Regarding Lending, Regulation and Efficiency

The global financial crisis starting in 2007 was a central element of the new millennium and had a major impact on the global economy. This paper deals with the underlying causes and fundamental conditions as well as research and insights on the financial crisis in the area of liabilities and future lending, effects of regulations and bank resilience, as well as the changes in the banking industry in relation to the determinants of profitability. With three hypotheses developed on the basis of existing literature, that is critically evaluated and appraised, the paper aims to explore the global economic crisis from perspectives and origins beyond the often analysed triggers. The focus is on the pivotal point of the economic crisis: the banks and their international interconnectedness regarding lending, durability, and efficiency. Among other things, the findings revealed that the effect of the external funding shock on banks' domestic lending is significant, strong regulation, characterized as one-size-fits-all international best practice, is not always the blueprint for bank resilience and that efficiency has been a determining factor in bank profitability. Furthermore, no paradigm shift took place after the global economic crisis, and banks still seem to have to be rescued by the state in the event of bankruptcy due to their size.

Determinants of Bank’s Resilience in Emerging Market: SEM PLS Approach

The banking industry is one of the industries that plays a role in global economic conditions, thus the resilience of the Bank is very important. The purpose of this study was to determine the effect of Bank Competition, Good Corporate Governance (GCG), and Bank Performance on Bank Resilience in Emerging Market. This research is a quantitative study by taking bank data listed on the Indonesia Stock Exchange during 2015-2019. This study used panel data and applied regression analysis with the Structural Equation Modeling (SEM) approach. The findings state that only the Bank Performance was the only variable that is significant for Bank Resilience, while the other two variables were not significant.

Does ownership structure affect firm performance? Evidence of Indian bank efficiency before and after the Global Financial Crisis

AbstractThis paper investigates the relationship between bank ownership and efficiency before and after the 2008–2009 Global Financial Crisis. Using a sample of 58 Indian commercial banks from 2005 to 2017, we examine the interconnection between these factors in a dynamic data envelopment analysis (DEA) framework. We use an innovative modeling strategy based on a two‐stage dynamic DEA framework. The first stage employs the Dynamic Slack‐Based Measure model to measure bank efficiency, explicitly considering the effects of desirable and undesirable carry‐overs between consecutive periods. In a second stage, we perform a regression of the efficiency scores on bank ownership types and several other contextual factors, while also accounting for the presence of endogenous relationships between the variables involved. Our results show that foreign banks outperform their domestic competitors, with bank size and profitability being the main drivers. We also find that while foreign and state‐owned banks were more efficient than their rivals during the Global Financial Crisis, private banks recovered quickly, reaching the efficiency standards of state‐owned banks by 2017. The latter faced a prolonged decrease in efficiency, gradually losing their initial advantage over their private domestic counterparts. Our results are robust to alternative regression specifications, especially those aimed at addressing potential endogeneity issues. The applied methodology and the findings of our research should be of interest to scholars, bank managers, and policymakers. The latter, in particular, should be concerned about the medium‐term effects of reforms that unevenly affect banks with different ownership structures, especially in terms of bank resilience to aggregate shocks.