Bank Returns Research Articles

Financial structure gap and bank lending-deposit rate spread in Sub-Saharan Africa: a panel analysis

ABSTRACT Sub-Saharan Africa (SSA) has one of the highest lending-deposit spreads. This study addresses a research gap by examining whether financial market structure explains the sub-continent’s high spread. The paper develops an original theoretical model. This is subsequently examined empirically. In and of itself, the study finds that financial market structure has no effect on the spread. However, it has a positive impact when it interacts with the differential between bank and stock market returns. Similarly, banking-sector concentration and the credit-deposit quotient increase the spread. In contrast, the following have a negative influence on the spread, namely: lagged degree of credit market equilibrium, government size and savings rate.

الجامعة المستنصرية / كلية الادارة والاقتصاد

The importance of the research lies in revealing the ability of private Iraqi commercial banks to maximize bank returns by attracting investments in the Iraq Stock Exchange, and the aim of the research is to how to manage the investment portfolio of private Iraqi commercial banks in the Iraq Stock Exchange and in a manner that achieves the highest return and the least risk, in addition In order to know which of those banks has an optimal portfolio, the research assumed that there was an effect of forming an investment portfolio in maximizing the return and reducing the risks for the banks. Statistical methods such as the variance rate, standard deviation and (beta) coefficient were used in measuring the return and risk of stocks to analyze the data. In the fluctuation of the achieved return of shares and the achieved return of the market from one year to another within the period, as well as the change in risk for bank shares from one year to another and during the period and the researcher made some proposals in the form of recommendations to increase the effectiveness of these banks in their investments, the most important of which was how to manage the investment portfolio in banks and increase investment awareness The investors and the need to adhere to the instructions of the Iraq Stock Exchange, as well as work to attract harm Invest in order to increase circulation in the market.

Bank profitability under uncertainty

The paper examines how uncertainty affects bank profitability, which has been surprisingly underexplored in the existing literature. Concretely, we focus on uncertainty in the banking sector and measure it via the cross-sectional dispersion of shocks to key bank-level variables. Using panel data from Vietnam during 2007–2019 and the two-step system generalized method of moments estimator in dynamic panel models, we find consistent evidence that banking uncertainty hampers the overall return of banks. In more detail, our analysis suggests that the adverse impact of banking uncertainty on net interest income dominates the favorable ones on aggregate non-interest income and loan loss provisions. While decomposing non-interest income into disaggregate components, we document that banks tend to improve income sources from fees, commissions, foreign exchange transactions, and other non-traditional segments amid uncertainty in banking, as opposed to the depreciation in securities trading revenues. Our additional examination further indicates that all effects are more pronounced for banks suffering more credit risk and default risk. This finding offers new evidence to support the notion that banking uncertainty leads banks to act cautiously as a precautionary motive.

Effect of Real Estate News Sentiments on the Stock Returns of Swedbank and SEB Bank

Abstract This paper explores the effect of real estate news sentiment on the stock returns of Swedbank and SEB Bank, which are leading banks in Sweden and the Baltic region. For this purpose, we have selected sentiments from news about real estate in the markets of these banks in Sweden, Estonia, Latvia, and Lithuania between 4 January 2016 and 19 February 2019. Estimation results showed that sentiments about the housing market affect stock returns for both banks, and the effect is different for positive and negative news. We also found that there is a difference in the stock returns of these banks in terms of when and to what extent they react to news coming from the Baltic States and Sweden. Moreover, we found that the number of negative news affects the stock returns of the banks more than the strength of the news. We also apply several GARCH specifications to explore if negative and positive news affect the volatility processes to some extent. We found out that the volatilities are explained better by the GJR-GARCH and NAGARCH models. Overall, the volatility of SEB stock returns depends more on the news sentiments compared to the volatility of Swedbank stock returns.

DETERMINANT MODELS AFFECTING FINANCIAL PERFORMANCE AND STOCK RETURN COMPANIES REGISTERED IN INDONESIA STOCK EXCHANGE

This research aims to analyze the effect of Capital Adequacy Ratio (CAR), Operating Expenses to Operating Income Ratio (BOPO), Loan to Deposits Ratio (LDR), Net Interest Margin (NIM), and Non-Performing Loan Ratio (NPL) variables on ROA and Stock Return of Banks That Listed in the Indonesia Stock Exchange. The population in this research is all banks listed on the Indonesia Stock Exchange. At the same time, the samples are 30 companies. The sampling uses the purposive sampling method. Secondary data was obtained in the Indonesia Stock Exchange and Yahoo! Finance. The independent variables used are CAR, BOPO, LDR, NIM, and NPL. The data analysis technique used is multiple linear regression analysis by SmartPLS software. This research indicates that the LDR, NIM, and NPL variables have a significant effect on ROA. The CAR, BOPO, and NPL variables have a significant effect on Stock Return. The predictive ability of the independent variables (CAR, BOPO, LDR, NIM, and NPL) on ROA is 59.5%, as indicated by the value of Adjusted R Square is 59.5%, while the remaining is 40.5% influenced by other variables not included in this research. The independent variables (CAR, BOPO, NIM, and NPL) on Stock Returns have 13.3% of Adjusted R Square while the remaining is 86.7% influenced by other variables.

Religiosity and bank performance: How strong is the link?

Using a disaggregated bank-level dataset for India, we explore the impact of religiosity on bank returns and risk. The findings suggest that board religiosity exerts a discernible influence on bank risk, although there is no statistically significant impact on returns. Relatedly, we also explore CEO religiosity interacts with board religiosity and its consequences for bank returns and risk. We find that CEO religiosity are in most instances uncorrelated with bank returns, although depending on their religious affiliation, there is an impact on bank risk. Disaggregated findings indicate that this behavior differs across state-owned and private banks and during periods of global financial crisis. Our findings thus underscore the role and relevance of religion in influencing bank behavior for a large emerging economy whose religious demography is distinctly at variance with those of Western democracies.

The leverage anomaly in U.S. bank stock returns

This article examines the relationship between capital ratios and returns on US bank stocks between 1973 and 2019. Banks with low capital ratios do not have higher, but rather lower returns than banks with intermediate levels of capital. This is not explained by standard risk factors. As a result, risk-adjusted returns (alphas) of low-capital banks are negative. Moreover, the stock returns exhibit a delayed reaction to changes in capital ratios. Low-capital banks that further increase their debt have high abnormal returns on the day of announcement, but tend to have low risk-adjusted returns in the 9 months that follow. The paper uncovers several explanations for this leverage anomaly: under-priced default risk, under-priced systematic risk and sensitivity to idiosyncratic volatility.

Asymmetries in the Euro area banking profitability

This paper shows how bank-specific, industry-specific, and macroeconomic determinants affect the profitability of 3046 banks across 19 Euro area countries, from 2006 to 2015. To assess the existence of potentially relevant asymmetries, we split our sample of Euro area banks into peripheral and core countries' banks. Our results reveal that, compared to banks from core countries, the marginal effect of the loan loss provisions burden on profitability is, on average, at least 3 times larger in peripheral banks where a 1 p.p. increase in loan loss provisions reduces return on average assets by 0.6 p.p. Moreover, the impact of loan loss provisions on profitability levels during the 2008–2013 financial crisis period is found to be significantly more severe in peripheral banks. Our results likewise suggest that the improvement of efficiency levels and a more selective asset growth have stronger effects on the returns of peripheral banks. In contrast, the effect of customer deposits suggests that core countries’ banks make better use of this source of funding.

Does a Change in the TED Spread Impact Bank Stock Returns?

During the economic crisis of 2008, the global economic system came under tremendous stress due to unusually high activity in the risk spread and volatility in the financial asset valuation. The spread between the US T-bill rate and the London interbank offer rate (LIBOR), a proxy for perceived counterparty credit risk called the “TED spread,” also increased during the crisis period and impacted other economic variables. This study examines the impact of credit risk, as represented by the TED spread, on the daily returns of the ABAQ index, which represents community banks, and the KBW index, which represents the money center and other major banks. The findings, based on daily data from 2010–2020, are as follows: An increase in credit risk led to a decrease in returns for both community banks and money center banks; however, the significance of credit risk and its impact on the stock returns of community banks and money center banks diminished when controlled for other stock market movements. <b>Key Findings</b> ▪ The TED Spread is critical to investment valuation since it is an indicator of the price of money in the global banking system. ▪ As an indicator of the solvency of financial institutions, monetary liquidity, and perceived risk of the financial system, an increase in the TED spread impacts the daily returns of banks (community banks, money centers, and other major banks) negatively. ▪ An increase in the TED spread leads to the drying up of market liquidity that increases cost of funding and generates a negative reaction in the stock market. The study shows that stocks for both larger banks and community banks, while affected by the TED spread, are more impacted by general market movements.

Responses of China’s shadow banking system to exogenous shocks

ABSTRACT The rapid expansion of China’s shadow banking system in recent years has led to continuous accumulation of risks and posed threats to the security of China’s real economy. According to the specific mechanism of China’s economic operation, this paper constructs a dynamic stochastic general equilibrium model to analyse the responses of China’s shadow banking system to the exogenous shocks of benchmark interest rate adjustment, high-risk enterprise return rate fluctuation and shadow bank return rate fluctuation. Results indicate that (1) the shadow bank loan interest rate reacts intensively to the benchmark interest rate adjustment; (2) the shadow bank loan interest rate has immediate and short-term response to the fluctuation of high-risk enterprise return rate; (3) the fluctuation of shadow bank return rate indirectly affects the shadow bank loan interest rate. An empirical study using the time-varying VAR model provides further empirical evidence. The shadow banking risks caused by the impacts on the shadow bank loan interest would increase the fragility of China’s financial system and endanger the security of China’s real economy.

Bank stocks, risk factors, and tail behavior

We examine how the tail behavior of risk factors affects the tail behavior of individual bank stock returns in the United States. Using 26 common risk factors, we construct univariate and multivariate conditional exceedance measures. We find that returns on banking industry, security-trading industry, and broad market portfolios have the largest impact on the probability of observing high positive tail returns on bank stocks. A small-minus-big bank return factor, market volatility, and a profitability risk factor have the largest impacts on the probability of lower tail returns. Bank capital ratios and total allowances for loan losses are notably related to tail risk. • The tail risk of bank returns is highly sensitive to the tail risk of several underlying risk factors. • Tail risk can more than triple when key market risk factors exhibit extreme realizations. • Bank capital ratios and total allowances for loan losses are also notably related to tail risk.

Bank foreign assets, government support and international spillover effects of sovereign rating events on bank stock prices

We study the international spillover effects of sovereign rating events on the stock returns of large banks in nonevent countries. Using S&P rating assessments from 1983 to 2018, we find that negative sovereign rating events spill over to foreign banks’ stock returns through the foreign asset holdings channel , especially if the rating shock to domestic banks is severe. Foreign sovereign debt holdings are not the only source to open such a channel. Negative sovereign rating events also spill over through foreign interbank exposures, but not through foreign claims to nonbank firms. We further find a previously undocumented positive side effect of government support to banks. The guarantee channel limits international spillover effects if banks with strong expected government support are located in countries with high sovereign ratings.

Using geochemistry to identify and quantify the sources, distribution, and fluxes of baseflow to an intermittent river impacted by climate change: The upper Wimmera River, southeast Australia

Documenting the distribution, sources and fluxes of baseflow discharge into rivers is important for their management and for maintaining ecosystem health. This study uses major ion geochemistry, 222Rn, and 3H to differentiate between the input of low-salinity near-river waters (bank storage and return waters and/or interflow) and regional groundwater in an intermittent river from southeast Australia that is undergoing long-term changes in flow resulting from climate change. Baseflow discharge calculated by 222Rn mass balance was up to 1.3 m3/m/day in the high flow period in July 2019 and up to 0.1 m3/m/day at low flow conditions in November 2019. The distribution of 222Rn activities implies higher baseflow fluxes in the upper and middle reaches that have relatively steep topography and higher hydraulic gradients. The lower reaches received less baseflow due to subdued topography and fine-grained sediments. The observation that Cl concentrations did not increase uniformly downstream, however, implies that much of the baseflow may comprise bank return flow or interflow. This conclusion is also consistent with water mass balance calculations and the observation that 3H activities (1.85–3.00 TU) in the river were higher than in the groundwater (<0.45 TU). Intermittent streams are likely to be less well connected to regional groundwater, and thus near-river water stores will be more important in sustaining streamflow during dry periods than regional groundwater. These rivers and their ecosystems may be less susceptible to the impacts of groundwater extraction and the near-river waters will provide a buffer zone from potentially contaminated regional groundwater. However, these near river stores are vulnerable to short-term climate variability, and changes to flow regimes resulting from climate change may significantly impact water supplies and ecosystem health.

Banking sector reactions to COVID-19: The role of bank-specific factors and government policy responses

This paper examines the impact of bank-specific factors and variations in the context of stringency of government policy responses on bank stock returns because of the COVID-19 pandemic. A sample of 1,927 publicly listed banks from 110 countries is used for the period of the first major wave of COVID-19, that is, January to May 2020. Our findings indicate that stock returns of banks with higher capitalization and deposits, more diversification, lower non-performing loans, and larger size are more resilient to the pandemic. While banks’ environment and governance scores do not have a significant impact, higher social and corporate social responsibility strategy scores intensify the negative stock price reaction to COVID-19. We further observe that the pandemic-induced reduction in bank stock prices is mitigated as the strictness of government policy responses increases, mainly through economic responses such as income support, debt and contract relief, and fiscal measures from governments.

Does sectoral diversification of loans and financing improve bank returns and risk in dual-banking systems?

This paper investigates the effects of sectoral diversification of loans and financing on the risk and the returns of banks in dual-banking systems. We employ the system GMM estimator on a unique panel data of 46 Islamic and 60 conventional banks from six countries over the period 2000–2015. Our findings reveal that sectoral diversification of loans and financing reduces the returns and increases the risk of both Islamic and conventional banks; the impact of sectoral diversification on returns varies across risk levels, with negative effects at low- and no effect at moderate- and high-risk levels; the difference between the impacts on Islamic and conventional banks across risk levels are marginal, and the adverse effects of sectoral diversification were exacerbated during the 2008 financial crisis. Expansion of loan and financing portfolios into new sectors has no impact on bank returns and risk in our sample. The findings may provide valuable implications for all stakeholders, regulators, and policymakers.

The Impact of COVID-19 Lockdown in Banks and Financial Institutions' Stock Performance: Evidence from Nepal

This paper examines the impact of COVID-19 lockdown on daily stock returns of banks and financial institutions (BFI) in Nepal. Employing the panel data regression models, this study examines the effect of daily COVID-19 positive cases to the stock returns – during pre-lockdown, lockdown, and after-lockdown period – of 74 listed firms in Nepal from 2 May 2019 to 25 April 2021. The empirical results confirm that there was no significant impact of daily increased number of COVID-19 positive cases to the stock returns of BFIs in Nepal throughout the entire study period. Furthermore, this study inquires the influence of pandemic period to the individual class of the BFIs sector in NEPSE[1]. It discloses that the commercial banks, development banks and microfinance companies’ stock returns were adversely impacted during the pre-lockdown and lockdown period. However, after-lockdown period had significantly rebounded the overall BFIs stock returns in Nepal with the highest returns earned by microfinance companies and lowest return by commercial banks. [1] Nepal Stock Exchange Limited

Is bailout insurance and tail risk priced in bank equities?

We present a pricing model of bank bailout insurance guarantees against tail risk and empirical evidence that provides a rational explanation why big bank equities “underperform” relative to small banks during normal times while they “overperform” during crises. A new measure accounting for left-tail risk protection against losses conditional on a crisis explains the “underperformance” of large banks during normal periods. Over the long-term spanning several economic cycles, bank assets are fairly priced regardless of size. Our empirical evidence supports our model’s predicted pattern of excess bank return reversals across economic cycles following Too-Big-To-Fail (TBTF) bailout policy in 1984.

Strengthening Bank Stability after the Crisis

During normal times, strengthening the financial stability of banks is associated with contradictory effects on returns. In this paper, we establish that liquidity and capital ratios had a positive impact on bank returns during the first three years following the global financial crisis. Our results are robust to different endogeneity and robustness tests. We identify deposit franchise and risk management as two key channels through which stronger financial stability improved bank returns. Our study contributes to a better understanding of the time- varying effects of financial stability and of the benefits of liquidity and capital ratios during normal times and not only in crisis periods.

Outbreak of epidemic diseases and stock returns: an event study of emerging economy

The massive contagion diseases such as COVID-19 amongst others, has affected nearly all the economies and business concerns that leads to substantial decline in the cashflows and returns dynamics. Considering the same, this paper intends to investigate the impact of outbreak of epidemic diseases on the stock return (observed through cumulative average abnormal return (CAAR)) for the listed banks in Pakistan from 2011 to 2020. Event study method was employed and five days pre and ten days post event of each disease were observed as an event window. The results confirm that none of the epidemic disease outbreak significantly determines the CAAR for all listed banks, except COVID-19 and Dengue Fever during the event day. There is a negative and significant impact of COVID-19 on the stock returns for all the banks in Pakistan from the event day to day eight except day seven. More specifically, COVID-19 is found to be a significant indicator for the stock returns of private banks. However, in case of public listed banks, only the outbreak of HIV cases possesses significant and positive impact on CAAR at the day of event. These findings would guide all stakeholders such as investors, financial analysts, regulators, and chief risk officers specifically in banks to make strategic decisions while analyzing the relationship between epidemic outbreaks and stock returns.

Effects of quality of assets and credit loss provision expense to profit of joint stock commercial banks in Vietnam

International economic integration is an inevitable trend and an objective requirement for any country in the current period of development. However, this process, in addition to creating certain advantages and opportunities for countries to participate in integration, also puts these countries in the face of difficulties and challenges. The roadmap for international economic integration puts the enterprises of developing countries in general, the system of joint stock commercial banks in particular, in the face of a new business environment with fierce competitive pressures and unbalanced competitors. Therefore, the research and analysis of the correlation between factors and profits of the Vietnamese joint stock commercial banking system in the current integration period to provide practical solutions which improve the performance of joint stock commercial banks is an urgent issue. From the above practice, this article examines the relationship between asset quality, credit risk provisioning costs, and profitability of joint stock commercial banks in Vietnam through ROE. The paper has evaluated this relationship by using table regression analysis with data collected from 2012 to 2019 at 28 joint stock commercial banks. Data analyzed on the Stata software and the results show a positive relationship between the quality of bank assets and returns and the inverse relationship between the cost of provisioning for credit losses and the profitability of joint stock commercial banks in Vietnam during the above period. Based on this result, a number of recommendations have been proposed to help joint stock commercial banks in Vietnam grow steadily in the condition of the economy being affected by the Covid-19 pandemic.