Risk Of Commercial Banks Research Articles

(Challenges for Ensuring the Information Security of Commercial Banks)

Bulgarian: Навлизането на новите информационни и комуникационни технологии в банковия бизнес радикално променя същността и характера на банковата дейност. Успоредно с конкурентните предимства и прекия икономически ефект от навлизането на високотехнологичните иновации в банковия сектор, кредитните институции се изправят и пред редица предизвикателства, едно от които е и гарантиране сигурността на предоставяните продукти и свързаната с тях информация. Основната цел на настоящото изследване е изясняване на същността, проявленията и методите за управление на информационната безопасност в търговската банка. Особен акцент се поставя върху източниците на операционен риск в търговската банка, оказващи непосредствено влияние върху потенциала за увеличаване на риска, свързан с информационната сигурност, като се разглежда ролята на банковия мениджмънт в управлението на този процес и методите и механизмите за намаляване на проявленията на разглеждания риск.English: The introduction of new information and communication technology into banking has radically altered the essence and character of banking activity. Alongside the competitive advantages and the direct economic effect of the advent of high-tech innovation in the banking sector, credit institutions are facing a number of challenges, one of them being to ensure the security of their products and related information. The main objective of this research is to elucidate the nature, instances, and methods of managing data security in commercial banks. An emphasis is put on some sources of operational risk in commercial banks which have a direct impact on the potentially growing risk in terms of data security. The research also focuses on the role of bank management in governing that process, as well as the methods and mechanisms for reducing the occurrence of the risk related to information security.

Challenges for Ensuring the Information Security of Commercial Banks

The introduction of new information and communication technology into banking has radically altered the essence and character of banking activity. Alongside the competitive advantages and the direct economic effect of the advent of high-tech innovation in the banking sector, credit institutions are facing a number of challenges, one of them being to ensure the security of their products and related information. The main objective of this research is to elucidate the nature, instances, and methods of managing data security in commercial banks. An emphasis is put on some sources of operational risk in commercial banks which have a direct impact on the potentially growing risk in terms of data security. The research also focuses on the role of bank management in governing that process, as well as the methods and mechanisms for reducing the occurrence of the risk related to information security.

Research on the Contrast and Reference of Commercial Bank Risk Management of International Studies based on the Interest Rate Marketization

In this paper, we conduct research on the contrast and reference of commercial bank risk management of international studies based on the interest rate marketization. Market-oriented interest rate reform is in view of the interest rate control, refers to the regulation of regulators relaxed lending and deposit rates that removes the protection of bank spreads and make money prices determined by market supply and demand fully. Under this condition, lets of risks can be expected. How to understand the causes of credit risk to strengthen the management of credit risk and controls guards against and dissolve that have become our country commercial bank operation and management activities of the urgent need to solve the problem. This article proposes the potential solutions for the mentioned challenges that are meaningful.

The Analysis of Major Credit Risk Factors - The Case of the Vietnamese Commercial Banks

In this study, we tried to identify determinants of the credit risks at Vietnamese commercial banks. By applying the quantitative model using the unbalanced panel data of 20 banks in the period from 2006 to 2014, coupled with surveying the dependent variable, that is non-performing loan (NPL), in order to express the credit risks in business activities of commercial banks, the study has made conclusions on two groups of determinants that may have influence on the credit risks: (i) Bank-specific determinants and (ii) macro determinants. Specifically, the quantitative results showed that most correlations affirmed the accuracy of theory and relevant previous research findings, of which some notable results obtained by the author included: (i) For bank-specific determinants, the credit risks were highly inertia, requiring the continuous management of credit risks. Besides, the bank size and market share negatively influenced the credit risks of commercial banks due to adverse impacts on the readiness of acceptance of risks in business activities. In addition, the rapid credit expansion, ineffective capital use and credit control and management also caused future credit risks. (ii) For macro determinants, the estimated results re-affirmed the relationship between impacts of economic cycles though GDP growth and credit risks of commercial banks. (iii) Additionally, the study has not found any correlation between the effectiveness of general management, real lending interest rate and credit risks in business activities of Vietnamese commercial banks.

Analyses of Operational Risk Measurement Models: Comparative Analysis for Chinese Commercial Banks

China has opened its financial market in 1990s. Since then banks have faced increasingly fierce competition. Banks of China have faced complex operational risks and suffered huge losses. Many studies have tried to solve out the causes of these embedded risks. However most previous studies have examined market risks, credit risks, and the types of liquidity. Most of them have focused on the management of banking risks. By combining with the regulation status of the operational risks of China`s commercial banks, we first analyze various methods mentioned in the prior studies. Additionally, we analyzed the operational risks, per se, of commercial banks of China. We find the relatively feasible way to prevent the operational risks. By making contrasts with alternative models of operational risks, we choose the basic indicator approach and the income-based models to test operational risks of commercial banks of China. For five commercial banks of China, income-based model appears to be able to cut the costs of operational risks. In terms of controlling the costs of operational risks, it is the income-based model that seems to outperform than the alternative. Also another aspect to be considered is Chinese commercial banks` capabilities of controlling operational risks. Our regression analyses provides that income based model is at least the best alternative for measuring operational risk in state. Further, the income-based model has its significance in the aspect that the operational risks have greater impact on net income of commercial banks than those of joint-stock banks of China.

Determinants of Islamic commercial banks financing risk in Indonesia

This research is aimed to show the empirical evidence of the influence of Financing Expansion, Financing Quality, Financing to Deposit Ratio, and Return on Assets on financing risk in Islamic Commercial Banks in Indonesia. This research uses purposive sampling so that three Islamic Commercial Banks are choosen: Bank Syariah Mandiri, Bank Muamalat Indonesia, and Bank Mega Syariah Indonesia. The analysis method of this research is panel data regression analysis. This research applies Panel Unit Roots (PRUTS), model specification test using Fixed Effect Model, classical assumption test (Homoscedastic, Autocorrelation, and Prais-Winsten Regression), hypothesis testing with a significance level of 5%. The result shows that Financing Expansion and Return on Assets have a negative and significant influence on financing risk. Meanwhile, Financing Quality and Financing to Deposit Ratio have a positive and significant influence on financing risk.

Comparison of Different Methods of Credit Risk Management of the Commercial Bank to Accelerate Lending Activities for SME Segment

The contribution is dealing with selected assessments of the most important risk in the banking sector in the Czech Republic. The aim of this article was to quantify capital requirement for individual methodologies of credit risk management on the designed portfolio with corporate loans with use of collateral using collaterals as techniques to reduce credit risk of commercial bank. Firstly, the aim of this article is to quantify the capital requirements using the Internal Rating Based Approach with collateral usage. Afterwards, achieved results have been compared with the methodology of the Standardized Approach and Internal Based Approach. The article is highlighted aspects of transition to developed methods of Internal Rating Systems with significant savings on equity, which allows banks accelerate lending activities and so increase provided services for small-medium sized companies.

Effects of Bank Capital on Profitability and Credit Risk: The Case of Vietnam's Commercial Banks

This paper seeks to examine the effects of bank capital on profitability and credit risk of 30 Vietnam’s commercial banks from 2007 to 2014. Using the system generalized method of moments (GMM), the paper conducts several tests on the moral hazard and regulatory hypotheses on the relationships among bank capital, profitability, and credit risk. With no regard to other determinants, its results indicate that the effects are evident, i.e. bank risk is found to impact differently on bank returns, and it is also negatively associated with credit risk of commercial banks in Vietnam.

Bank Risk, Capitalisation and Technical Efficiency in Vietnamese Banking

We investigate the interrelationships between efficiency, capital and risk in Vietnamese commercial banks by using the three-stage least squares in a simultaneous equation framework. The efficiency scores of individual bank are obtained from the Data Envelopment Analysis with the use of financial ratios. Our results show that more diversified banks tend to be higher risk-taking and poor performance. We also find that the negative relationship between bank risk and capital, suggesting that credit risk and financial leverage are reinforcing each other. In addition, our findings also indicate that an increase in bank efficiency precedes an increase in risk. Finally, the findings suggest that more efficient banks and lower credit risk are associated with higher capital levels. Therefore, the results have potentially important implications for bank prudential supervision and underline the importance of increasing the minimum charter capital requirement in the future to support financial stability objectives.

Risk, Competition and Efficiency in the Chinese Banking Industry: Evidence from Stochastic Frontier Analysis and Three-Stage Least Square Estimator

Using a sample of Chinese commercial banks over the period 2003-2013, this paper tests the interrelationships between risk, competition and efficiency in the Chinese banking industry under a three-stage least square estimator. The paper is the first study comprehensively examining different types of risk-taking behaviours of Chinese commercial banks. The findings suggest that there are significant interrelationships between credit risk, liquidity risk, capital risk and efficiencies of Chinese commercial banks. In addition, it is found that higher levels of competition lead to lower cost and revenue efficiencies and there is a significant and positive impact of credit risk on bank competition. The results provide policy implications to Chinese government and banking regulatory authorities

Identification of Indicators’ Applicability to Settle Borrowers’ Probability of Default

Abstract Borrowers default risk is one of the most relevant types of risk in commercial banking and its assessment is important to secure business profitability and avoid huge losses during economic turbulences. This leads to necessity to investigate topics related to assessment of borrowers’ default probability and applicability of factors, which would enable to capture the newest trends of borrowers’ markets. Leading economic indicators (in addition to financial and other economic indicators) are often suggested as forward-looking in scientific literature. However, there is still a discussion going on applicability of financial ratios and economic indicators. As the problem is relevant in theoretical view as well as for practitioners, this article aims to identify applicability of leading economic indicators for the estimation of default probability. Further, the qualitative criteria for factor selection were identified and used when using detailing, grouping and SWOT analysis methods. Based on current scientific literature analysis, this paper concludes that although leading economic indicators are able to capture forward-looking signals, they should be used with careful analysis of its drawbacks and in combination with financial factors in order to avoid overshooting effects. The limitation of the article is the analysis of factors based on rather theoretical analysis than estimation of quantitative criteria. This suggests that every time using leading economic indicators requires using empirical study of particular indicators’ set.

Banks and sovereign risk: A granular view

We investigate the determinants of sovereign bond holdings of German banks and the implications of such holdings for bank risk. We use granular information on all German banks and all sovereign debt exposures in the years 2005–2013. As regards the determinants of sovereign bond holdings of banks, we find that these are larger for weakly capitalized banks, banks that are active on capital markets, and for large banks. Yet, only around two thirds of all German banks hold sovereign bonds. Macroeconomic fundamentals were significant drivers of sovereign bond holdings only after the collapse of Lehman Brothers. With the outbreak of the sovereign debt crisis, German banks reallocated their portfolios toward sovereigns with lower debt ratios and bonds with lower yields. With regard to the implications for bank risk, we find that low-risk government bonds decreased the risk of German banks, especially for savings and cooperative banks. Holdings of high-risk government bonds, in turn, increased the risk of commercial banks during the sovereign debt crisis.

The Impact of the Internal Audit in Reducing Credit Risk in Commercial Banks in Kosovo

Credit risk represents the vast majority of the risk in the context of estimating the capacity of the transfer of risk from commercial banks. Any commercial bank operating, in Kosovo, must have a system for managing credit risk. An important and essential process, such as the management of the credit risk, cannot be carried out without the aid of internal audit. From the survey results, it was concluded that the process of auditing the banks recommended the implementation of policies for managing credit risk of the respective commercial bank’s policy. This also include the policy of credit risk management of the Central Bank of the Republic of Kosovo, implementation of procedures, regulations and rules for credit exposure, loan portfolio diversification, training of staff of the credit risk involved in completing the loan files, etc.

To Separate or Not to Separate Investment from Commercial Banking? An Empirical Analysis of Attention Distortion Under Multiple Tasks

In the wake of the 2008/2009 financial crisis, a number of policy reports (Vickers, Liikanen, Volcker) proposed to separate investment banking from commercial banking to increase financial stability. This paper empirically examines one theoretical justification for these proposals, namely attention distortion under multiple tasks as in Holmstrom and Milgrom (1991). Universal banks can be viewed as combining two different tasks (investment banking and commercial banking) in the same organization. We estimate pay-performance sensitivities for different segments within universal banks and for pure investment and commercial banks. We show that the pay-performance sensitivity is higher in investment banking than in commercial banking, no matter whether it is organized as part of a universal bank or in a separate institution. Next, the paper shows that relative pay-performance sensitivities of investment and commercial banking are negatively related to the quality of the loan portfolio in universal banks. Depending on the specification, we obtain a reduction in problem loans when investment banking is removed from commercial banks of up to 12 percent. We interpret the evidence to imply that the higher pay-performance sensitivity in investment banking directs the attention of managers away from commercial banking within universal banks, consistent with Holmstrom and Milgrom (1991). Separation of investment banking and commercial banking may indeed be associated with a reduction in risk in commercial banking.

РИСКИ КОММЕРЧЕСКИХ БАНКОВ: РЕГИОНАЛЬНЫЙ АСПЕКТ НА ПРИМЕРЕ САРАТОВСКОЙ ОБЛАСТИ

РИСКИ КОММЕРЧЕСКИХ БАНКОВ: РЕГИОНАЛЬНЫЙ АСПЕКТ НА ПРИМЕРЕ САРАТОВСКОЙ ОБЛАСТИ

The Risks of Commercial Banks on Interest Rate Marketization

The interest rate of market reform and deepening of our country commercial bank stability and sustainable development of the important and far-reaching impact. Is the core of modern economy and financial interest rates, as the price of money, interest rate plays an important role in the allocation of resources. As the interest rate market advance, domestic commercial bank's overall risk level is lower than the optimal risk. In this paper, in combination with the practical situation of the market, on how the commercial Banks under the background of market-oriented interest rate risk prevention, risk aversion caused by excessive systemic risks are expounded.

The Impact of Interest Rate Marketization on China’s Commercial Banks and Its Tactics

With the advance of market-oriented interest rate, the risk of commercial banks in our country is increasing day by day, including credit risk and interest rate risk. This paper mainly discusses the interest rate risk, and the re-pricing risk based on the interest rate risk. And this paper makes an empirical study and puts forward countermeasures of the commercial banks in China under the background of market-oriented interest rate.

Modeling the Relationship between Bank Efficiency, Capital and Risk in Albanian Banking System

Abstract Bank efficiency is considered to be very important in the relationship between risk and capital. It affects both capital and risk and it is seen as one of the factors that determine them. On the other side, capital regulation and risk-taking behaviour influenced by it have an impact on efficiency. This paper gives an overview of theoretical and empirical studies that are going to be used on modelling the relationship between efficiency, capital and risk-taking behaviour of commercial banks operating in Albania during the period 2002-2014. Based on previous works worldwide, a three stage model is found to be a proper one for such analysis about Albanian banking system. According to this model: first, the regression of efficiency and variables indicating risk and capital has to be analysed, second capital will be regressed against variables indicating efficiency and risk and in the third stage risk-taking will be regressed against variables indicating efficiency and capital. Based on previous studies related to this issue there are findings of a positive trade off between inefficiency and bank risk-taking (such as US evidences) and also negative one (such as European banks that seem to hold more capital and take on less risk in case of inefficiency). Defined independent factors of efficiency, capital and risk-taking are going to be used on an empirical study, subject of prospective research. To my knowledge there is no previous study on this issue for Albanian banking system. This model enables testing of different hypotheses about risk, capital, efficiency and relationship between them. It is going to respond to the effects that reduction in cost efficiencies might have on future risks of Albanian commercial banks. Furthermore, this model gives the possibility to test the bad management hypothesis and efficiency version of moral hazard hypotheses for targeted banks and banking system. It also responds to the questions whether bank cost efficiency makes the foundation of banks’ capital position and risk-taking and also whether there is an evidence of relationships between capital and risk-taking in line with moral hazard hypothesis.

Risk, Competition and Cost Efficiency in the Chinese Banking Industry

Using a sample of Chinese commercial banks over the period 2003-2013, this paper tests the interrelationships between credit risk, competition and cost efficiency in the Chinese banking industry under a three-stage least square estimator. The findings suggest that a higher level of competition leads to higher credit risk of Chinese commercial banks and a higher level of efficiency leads to lower credit risk. In addition, it is found that higher level of efficiency results in higher level of competition in the Chinese banking industry and higher levels of credit risk precede an increase in the level of competition. Finally, the results show that Chinese commercial banks with higher levels of credit risk have lower levels of cost efficiency and competition-efficiency hypothesis holds in the Chinese banking industry. The results provide policy implications to the Chinese Government and banking regulatory authorities.

Contemporary challenges in the banking risk management

Risk management is one of the crucial parts of today's business banks management. Global economic crisis in the last decade has strongly influence that risk management is having increased importance in the total banking management. Credit risk is still most dominant risk in the banks worldwide. Similar situation is also in the Republic of Serbia. Liquidity, market, operational and other risks are also having increased importance in today's banking. Still, typical dominant risk of average commercial bank is credit risk. High level of non-performing loans is one of the especially important credit risk contemporary challenges. Banks, regulatory bodies and other involved institutions are intensively working on the solutions for this topic. Methods for the risk management are experiencing significant changes and progress in the recent years. Inevitably connected banking topic with previous is capital management progress. In this article current situation in the banking risk management will be analysed. It will be shown in which direction risk management will develop. It will be also analysed actual situation in the banking capital management. Experiences from the Republic of Serbia as well as worldwide banking experiences will be taken into consider. The article will outline recommendations for further risk management progress.