Risk Of Commercial Banks Research Articles

RELATIONSHIP BETWEEN ECONOMIC RISK AND FINANCIAL, PERFORMANCE OF COMMERCIAL BANKS IN KENYA

Financial institutions play a key role in spurring the growth of the economy. Commercial banks operate in a highly volatile environment which threatens their ability to achieve their desired goals. The purpose of this study was to establish the relationship between economic risk and the financial performance of commercial banks in Kenya. The study was anchored on agency and prospect theories. Longitudinal and cross-sectional research design was used. The study population was 42 commercial banks in Kenya. 32 purposively sampled commercial banks which had audited financial accounts for the years 2016 to 2021 were included in the study. Secondary panel data collected using an extraction tool validated by experts from banks and academia was analyzed using R statistical software version 4.3.2. Reliability of the data was ensured by using audited financial reports. Descriptive and inferential data analysis techniques were used. Inferential statistics used were linear mixed effects multiple regression allowing random effects to vary by banks. The study findings showed that economic risk significantly influence financial performance with high liquidity and credit risks associated with lower ROE (beta; -10.36; 95% Confidence Interval (CI): ( -18.45 to -2.27), p-value: 0.012) and (beta: -0.29; 95% CI (-0.46 to -0.13), p-value: 0.001.)The study concluded that there is a statistically significant relationship between economic risk and financial performance of commercial banks in Kenya. Based on the findings from this study, it is recommended that commercial banks may adopt a holistic approach to risk management by emphasizing economic risks. This study may significantly benefit the government, CBK and the commercial bank management in Kenya to inform policy framework as well as the academia and researchers as far as economic risk and financial performance of commercial banks is concerned.

THE MODERATING EFFECT OF FIRM SIZE ON THE RELATIONSHIP BETWEEN ENVIRONMENTAL RISK AND THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA

Financial institutions play a key role in spurring the growth of the economy. However, banks operate in a highly volatile environment which threatens their ability to achieve their desired goals. The purpose of this study was to establish the moderating effect of firm size on the relationship between environmental risk and the financial performance of commercial banks in Kenya. The study was anchored on the growth of the firm theory. Longitudinal and cross-sectional research design was used. The population of the study was 42 commercial banks in Kenya. 32 purposively sampled commercial banks which had audited financial accounts for the years 2016 to 2021 were included in the study. Secondary panel data collected using an extraction tool validated by experts from banks and academia was analyzed using R statistical software version 4.3.2. Reliability of the data was ensured by using audited financial reports. Descriptive and inferential data analysis techniques were used. Mixed effects regression model to assess the moderating effect of environmental risk on financial performance of commercial banks showed that firm size significantly moderates the relationship between environmental risk and financial performance of commercial banks in Kenya. The number of branches shows a significant moderating effect in tier 3 banks compared to tier 1, where a higher number of branches negatively affects ROA (beta: -0.22, 95% CI: (-0.31 – -0.14), p-value: <0.01). The study concluded that there is a statistically significant moderating effect of firm size on the relationship between environmental risk and the financial performance.

Bank Regulations and Credit Risk of Nepalese Commercial Banks

Purpose of this study is to measure the impact of banking regulations specifically base rate, weighted average spread rate, bank capital, loan loss reserve, and broad money supply on credit risk of commercial banks in Nepal. Descriptive, correlational, and casual comparative research design have been used in this study. This study is based on secondary sources of data. Data were collected from annual audit reports of twenty- six commercial banks from fiscal year 2012/13 to 2018/19 out of twenty- seven, and from fiscal year 2020 to 2022, nineteen commercial banks out of twenty. Rastriya Banijya Bank (RBB) as a Government owned bank has been excluded in this study. The mean, range, standard deviation, coefficient of variation, correlation analysis, and multiple regression analysis statistical tools were used in this study. This study reveals that loan loss reserve is highly scattered than after bank capital, credit risk, broad money supply, base rate, and weighted average spread rate respectively. There is significant positive relationship of credit risk with bank capital, loan loss reserve, and broad money supply. Study results revealed that there is significant impact of bank capital, loan loss reserve, broad money supply, and base rate on credit risk.

Profiling the victim - cyber risk in commercial banks

Profiling the victim - cyber risk in commercial banks

Impact of COVID-19 on the Relationship between Credit Risk and Financial Performance of Commercial Banks in Kenya

The study sought to establish the impact of COVID-19 on the relationship between credit risk and the financial performance of commercial banks in Kenya. A descriptive research design that targeted all commercial banks in Kenya was adopted and focused on two eras, pre and post-COVID-19 and sought to find out the impact it had on the variables under study. The results indicated the existence of a positive and significant correlation between the Capital adequacy ratio and return on assets. It also established a moderately strong positive relationship between liquidity ratio and return on assets among the banks reviewed. It further established a weak positive relationship between the total assets held by the banks and the return on assets. On the other hand, the study established a negative slope and significant correlation between Non-Performing Loans ratio and Return on assets. Subsequently, the study established that Capital adequacy ratio, Liquidity ratios and Total assets had a significantly positive relationship with the Return on Assets of the identified banks operating within Kenya. In this regard, the study recommends further studies, especially on mobile loan products, in view of how well banks perform. One key area would be the impact of mobile loans on the credit risk to banks.

ESG risk management in banks – towards its measurement

The concept of sustainable development has been gaining importance and increasing society's awareness of the need to stop climate change, inequality, social exclusion, and inappropriate corporate practices. Banks increasingly integrate ESG objectives into their business activity. However, it is associated with their exposure to a new type of risk – the ESG risk. ESG risk management for banking institutions has now become not only a fashion and trend but an obligation that they have to fulfil. The main aim of the article is to identify ESG risk and methods of quantification, as well as to assess the exposure to ESG risk of commercial banks in Poland. That’s why the paper presents an in-depth literature review in the field of ESG concept and ESG risk in banks. Then, it describes the adopted methodology of the empirical research. The third section covers a presentation of the obtained results, which include the analysis of ESG risk exposure of the largest banks in the world and selected commercial banks in Poland, mainly based on the volume of the carbon footprint they generate and finally, ESG risk ratings for Polish banks. The following research methods were used in the article: literature studies, case study analysis, observation methods and synthesis methods. The empirical research that was conducted allowed the verification of the research hypothesis, stating that commercial banks in Poland are aware of the need to measure and monitor ESG risk increases. The research indicated that some of the banks in Poland are at an advanced stage of ESG risk management, while the rest of them are just starting their activities in this area. Currently, banks' involvement in ESG issues globally is one of the leading market trends. It becomes not only an option but an imperative for institutions wishing to maintain their market position. Therefore, commercial banks in Poland can and should participate in the implementation of sustainable development assumptions in the coming years.

Interest Rates Risk and Financial Performance of Commercial Banks in Kenya

Interest Rates Risk and Financial Performance of Commercial Banks in Kenya

Assessment of Risk Strategies in Banking Sector of Nepal

This article examines the impact of strategies in mitigating the risk in commercial banks of Nepal. First the paper introduces the risk in the financial institutions and then discusses the types of risks in the banks that rely on the IT systems for the operations and services. Besides, it forwards some strategies that can help the banking sector to reduce the risk and to promote the security from the attackers. I have used the mixed method of research design and have massively used the secondary data to assess the impact of the tools and techniques employed in mitigating the risk in the banking sector of Nepal. Despite the reliance on the secondary materials for information, the paper is analytical and critical contribution to the existing knowledge on the subject i.e. the risk management in the financial institutions of Nepal. The major objective of the paper has been to scrutinize the current risks faced by the banks in Nepal and the process of reducing the risks as adopted by the financial institutions in general. The finding of the study is the spread of awareness and updating the IT systems by the banks can help to protect the systems from the intruders and the cyber security must be strengthened to let the financial institutions feel safe.

Capital price distortion, financial leverage, and credit risk in commercial banks

This paper uses panel data from 30 provinces and cities from 2012 to 2022 (excluding Tibet, Hong Kong, Macao, and Taiwan), and empirically examines the impact of capital price distortion and financial leverage on the non-performing loan (NPL) ratio of banks by constructing a dynamic panel system GMM model. The study finds that capital price distortion and financial leverage have a significantly positive impact on the NPL ratio of commercial banks. Increasing the degree of capital price distortion and financial leverage leads to a higher NPL ratio. Further analysis reveals that capital price distortion has a significantly positive impact on financial leverage, while Overcapacity has a significantly negative impact on financial leverage.

Local government debt, real estate credit, and systemic risk of commercial banks

ABSTRACT This study delves into the systematic tracking and monitoring of long-term equilibrium and short-term adjustments in systemic financial risk, a cornerstone for effectively implementing dual-pillar macro-prudential regulatory policies. Employing the ΔCoES indicator to gauge banking systemic risk, the paper harnesses cointegration analysis and the MS-VECM. It comprehensively examines the interactions between local government debt, real estate credit, and banking systemic risk from 2011 to 2022. The empirical findings reveal significant non-linear long-term equilibrium and short-term error correction relationships among these risks, predominantly characterized by marked dual-regime structural changes. These insights are highly relevant for consistently and coherently implementing macro-prudential regulatory policies across various economic cycles.

Corporate Governance and Liquidity Risk of Nepalese Commercial Banks

This study examines the relationship between corporate governance and liquidity risk in Nepalese commercial banks. Cash reserve ratio and credit to deposit ratio are selected as the dependent variables. Similarly, board size, independent directors, female directors, leverage ratio, audit committee and total assets are selected as the independent variables. This study is based on secondary data of 18 commercial banks with 108 observations for the study period from 2016/17 to 2021/22. The data were collected from Banking and Financial statistics published by Nepal Rastra bank and the annual reports of respective banks. The correlation coefficients and regression models are estimated to test the significance and importance of corporate governance on the level of liquidity risk in Nepalese commercial Banks. The study revealed that board size has a positive impact on cash reserve ratio and credit to deposit ratio. It means that increase in board size leads to increase in cash reserve ratio and credit to deposit ratio. Similarly, independent director has a positive impact on cash reserve ratio. It indicates that increase in independent director leads to increase in cash reserve ratio. Likewise, independent director has a negative impact on credit to deposit ratio. It indicates that increase in independent director leads to decrease in credit to deposit ratio. Further, female directors have a negative impact on cash reserve ratio. It shows that higher the female directors, lower would be the cash reserve ratio. In addition, female directors have a positive impact on credit to deposit ratio. It shows that higher the female directors, higher would be the credit to deposit ratio. Likewise, leverage ratio has a positive impact on cash reserve ratio. It shows that higher the leverage ratio, higher would be the cash reserve ratio. Similarly, leverage ratio has a negative impact on credit to deposit ratio. It shows that higher the leverage ratio, lower would be the credit to deposit ratio. Moreover, this study showed audit committee has a negative impact on cash reserve ratio and credit to deposit ratio. It means that increase in audit committee leads to decrease in cash reserve ratio and credit to deposit ratio. Likewise, total assets have a positive impact on cash reserve ratio. It shows that larger the total assets, higher would be the cash reserve ratio. On the other hand, total assets have a negative impact on credit to deposit ratio. It shows that larger the total assets, lower would be the credit to deposit ratio.

Credit Card Client’s Payment Prediction for Next Month Using Machine Learning Algorithms

With the quick growth of the credit card system, there is a rising number of misconduct rates on credit card loans, which creates a financial risk for commercial banks. Thus, successful resolutions of the risks are significant for the sound advancement of the industry in the long term. Numerous financial banks and organizations become more and more attentive to the issue of credit card default because it brings about a high probability of financial risks. Credit risk plays a significant part in the financial business. One of the main functions of a bank is to issue loans, credit cards, investment mortgages, and other credit. One of the most popular financial services offered by banks in recent years has been the credit card. With its constant rise in risk factors, the banking industry is perhaps the most fragile and volatile in the world. Credit risk remains a crucial element for financial institutions that have experienced losses amounting to hundreds of millions of dollars as a result of their incapacity to retrieve the funds disbursed to clients. In the banking industry, it is now vital to forecast whether a borrower will be able to repay the loan. In this paper, we applied different machine learning classifiers, including Random Forest, K Nearest Neighbor, Logistic Regression, Decision Tree, Decision Tree with AdaBoosting, and Random Forest with AdaBoosting, to build a credit default prediction model. The results show that the AdaBoosting model achieved better accuracy than the other machine learning algorithms. Our proposed technique can support financial organizations in controlling, identifying, and monitoring credit risk, and it can identify credit card clients who pay the loan in the next month.

How Female Representation in Indonesian Banks Affects Credit Risk: Evidence from Indonesia

This study examines the impact of female representation on the Board of Directors (DDP), Board of Commissioners (DKP), and Audit Committee (KAP) on credit risk in commercial banks in Indonesia. Utilizing panel data with 399 observations from various banks over a specified period, the Random Effect Model (REM) was applied to analyze the relationship between the independent variables (DDP, DKP, and KAP) and the dependent variable (credit risk). The results indicate that DDP has a significant negative impact on credit risk (coefficient -4.331768, p = 0.0000), suggesting that increasing the proportion of women on the Board of Directors tends to reduce credit risk. This could be attributed to the diversity of perspectives and caution in decision-making brought by women, as well as a push for higher transparency and accountability. The DKP shows a nearly significant negative impact on credit risk (coefficient -1.371344, p = 0.0593). Although its impact is not as strong as DDP, the presence of women on the Board of Commissioners can also reduce credit risk through enhanced supervision and control. Conversely, KAP does not have a significant impact on credit risk (coefficient 0.508613, p = 0.5055). This suggests that while gender diversity on the audit committee is important for regulatory compliance and internal control, it may not directly influence credit risk management. Theoretically, these findings support the literature that gender diversity on boards improves the quality of decision-making and risk management. Managerial implications emphasize the importance of increasing female representation on the Board of Directors and Board of Commissioners to reduce credit risk and enhance the financial stability of banks. Gender diversity policies should be implemented at all organizational levels to maximize their benefits in corporate governance. This study provides insights for policymakers and practitioners in the banking sector on the importance of gender diversity in managing risk and improving the financial performance of banks.

Monetary Policy, Capital Regulation and Systemic Risk in Commercial Banks: Evidence from in China

This paper examines the impact of monetary policy and capital regulation on commercial banks' systemic risk using a fixed panel model with data from 16 listed commercial banks in China from Q1 2011 to Q4 2019. The results show that both quantity-based monetary policy instruments, represented by currency issuance, and price-based monetary policy instruments, represented by interest rates, affect systemic risk. And they both show that accommodative monetary policies amplify commercial banks systemic risk. Besides, capital regulation has a dampening effect on systemic risk, and the intensity of regulation moves inversely with systemic risk. In addition, there is a synergistic effect between monetary policy and capital regulation. Furthermore, a symbiotic relationship exists between monetary policy and capital regulation. The findings of this study assist nations in managing systemic financial risks through macroeconomic policies.

Determinants of Non-Performing Financing Risk in Islamic Commercial Banks in Indonesia

Determinants of Non-Performing Financing Risk in Islamic Commercial Banks in Indonesia

Effects of Negative Interest Rates on Stability and Profitability of Commercial Banks

The article examines the impact of the European Central Bank's (ECB) negative interest rate policy (NIRP) on commercial banks in Europe. It traces the historical context of the policy back to the financial market and banking crises, which eroded trust among banks, leading to liquidity issues and economic downturns. To counteract this, the ECB introduced negative interest rates in 2014, aiming to stimulate the economy.The research question focuses on how NIRP affects banks' annual reports, particularly concerning total assets, credit and risk volumes, proprietary trading, profits, and stability. The hypothesis suggests that NIRP significantly increases risks in bank profitability and stability. Analysis spanning from 2014 to 2022 compares negative interest rate changes with bank balance sheet and profit/loss account developments.Economic theory predicts that negative interest rates decrease bank profits but increase lending activity. Statistical analysis confirms a correlation between NIRP and increased credit risk volume, as well as a shift from bonds to shares in proprietary trading. However, there is no statistical evidence linking NIRP with profit and profitability declines.In conclusion, while NIRP does lead to a significant increase in credit risk volume, it does not halt falling profits and profitability. Therefore, the hypothesis that NIRP increases risks for commercial banks' profitability and stability holds true, posing a threat to financial stability.

The Effect of ESG Performance on Bank Liquidity Risk

In recent years, investors have increasingly focused on the environmental, social, and governance (ESG) performance of businesses, driven by the rising importance of social and environmental challenges. This trend highlights the critical role of ESG factors in the financial sector. This study leverages stakeholder theory, risk management theory, and ESG investment theory, utilising financial data and ESG scores from Chinese listed banks to comprehensively analyse ESG elements and examine their impact on the liquidity risk of commercial banks. The results show that: (1) Enhanced ESG performance can mitigate liquidity risk in commercial banks by reducing the proportion of non-performing loans and improving overall financial performance. (2) By standardising and implementing sustainable business practices, ESG elements can improve commercial banks’ liquidity management levels and lessen the incidence and effects of liquidity risk. As a result, it is critical to lower banks’ liquidity risk and support the long-term growth of commercial banks from five angles: information disclosure, differentiated reform, digital transformation, education and training, and international cooperation.

The impact of green finance and technology on the commercial banks’ profit and risk

This paper investigates the impact of green credit on the performance and risk of Chinese commercial banks, and also explores the impact of green technology on this mechanism. The results show that for all banks, green loan balances have a significantly negative impact on net profit. While for large, small and medium sized banks, it also reduces and increases bank insolvency risk respectively. Therefore, our findings suggest that the standard mechanism for measuring the benefits of green credit should be improved and the regulatory mechanism for green credit should be strengthened.

Monetary policy and risk of commercial banks in Vietnam

This study investigates the bank risk-taking channel of monetary policy transmission by comprehensively analyzing multiple bank risk measurements amid monetary policy shocks in Vietnam. Using banking data for 2008–2021, a dynamic panel model is estimated to examine the risk exposure of 30 Vietnamese commercial banks. The paper employs the annual M2 money supply growth as a monetary policy variable, besides two policy interest rates established by the central bank. We find that an expansion of monetary policy benefits the quality of loan portfolios; however, reduced interest rates or an extended money supply increase insolvency risk. We also document that heightened economic growth corresponds to a reduced likelihood of credit and insolvency risks, while a surge in the inflation rate leads to an escalation in insolvency risk, manifested by a decline in the Z-score index. Overall, the findings on different risk dimensions in this paper are expected to draw a comprehensive picture of banks’ risk appetite and behavior in response to monetary changes.

The impact of digital transformation on credit risk of commercial banks in Vietnam

In Vietnam, digital transformation has been considered as the leading strategy of commercial banks, especially in terms of credit risks. Therefore, they must identify how their digital transformation affects their credit risks to maintain effective operation and steady growth in a complex and changing market environment. Our study takes 29 commercial banks in Vietnam from 2014 to 2022 as the research object to test the impact of bank digital transformation on credit risk. In particular, the level of digital transformation of banks is measured by the ICT Index. The ICT Index is the official measure that evaluates the level of information technology application nationwide each year, with separate indicators for ministries and branches. Banks in Vietnam also use the ICT Index to assess their readiness and ability to apply information technology in the digital transformation process. Various regression models including Pooled Ordinary Least Squares (OLS), Fixed Effects Model (FEM), Random Effects Model (REM), Generalized Least Squares (GLS) are applied using STATA 17. Research results show that credit risk is affected by 5 factors: the information technology development and application readiness index (ICT Index), inflation rate (INF), return on equity (ROE), loans to customers (LOAN), and operational diversification (NIIC). On that basis, the study proposes recommendations for commercial banks to promote their digital transformation process. In addition, the state and policymakers also have appropriate measures to promote digital transformation in the Vietnamese banking system.