Bank Stability Research Articles

Nghiên cứu tác động của sức mạnh thị trường tới sự ổn định của các ngân hàng thương mại Việt Nam

This paper investigates the impact of market power on the stability of Vietnamese commercial banks using a quarterly unbalanced panel data set of 22 commercial banks in the period from Q2:2015 to Q3:2023, combined with panel data analysis models. Research results show that market power has a negative impact on the stability of Vietnamese commercial banks, implying that a more competitive banking market will have higher stability. In addition, a higher non-performing loan ratio, loan-to-deposit ratio and inflation also make banks less stable, as these factors increase bankruptcy risk, liquidity risk, and credit risk. On that basis, this paper proposes some policy recommendations to improve the stability of Vietnamese commercial banks, including creating a favorable banking business environment, encouraging diversification and innovation in the banking market (such as supporting small banks to increase capital or establish FinTech in a controlled manner). In addition, commercial banks need to proactively manage their internal factors such as credit risk and loan to deposit ratio to ensure stability.

Examining the nexus between governance and financial inclusion in the Nordic-Baltic region: Bank stability as a moderator

To attain sustainable development, a pertinent question that needs to be answered is whether good governance leads to financial inclusion (FI) and whether bank stability matters. This study examines how financial stability modulates the link between governance and FI in the Nordic-Baltic region between 2004 and 2021. Using a mixed effect model, we observed a positive causal relationship between governance and FI and bank stability modulate this causality. These findings are robust to alternative assumptions and model specifications. Interestingly, we found that good governance helps foster economic growth and social equality. The study further highlights the need for digital financial education to overcome the phobia of digital products as a priority policy agenda. Overall, this finding supports arguments in the literature that for FI to be sustainable, inequality should be low as income levels and well-being increase.

The impact of digital finance and financial inclusion on banking stability: International evidence

Research background: Achieving a jointly stable and inclusive financial system represents an important pillar of the call for action among Sustainable Development Goals. Considerable attention from previous research has been given to traditional financial inclusion (FI) and its implications on financial stability and overall development, but the findings are mixed. Furthermore, there is limited evidence related to the implications of digital financial inclusion on banking system stability. Therefore, the present study tends to address two main research questions, as follows: Can traditional financial inclusion protect banking stability? Can digital finance inclusion become a new driving force to promote banking stability? Purpose of the article: The paper aims to assess the influence of both traditional and digital financial inclusiveness on banking stability, using quantile regression, across a panel of 81 countries. We also examine the potential transmission channels through which financial inclusiveness influences banking stability. Methods: We construct three different financial inclusion indices, which capture the degree of access and usage of financial services, based on a three-stage Principal Component Analysis. Next, based on quantile analysis, we test the role of these financial inclusion indices in shaping banking stability. Findings & value added: We provide international evidence on the non-linear relationship between traditional and digital FI and banking stability, respectively. Our empirical findings suggest that FI indices are negatively related to banking stability until a certain threshold, after which, increases in financial inclusiveness have a positive effect on banking stability. The magnitude of the impact is more sizeable for low-range quantiles, meaning that the effect of digital inclusiveness is more pronounced in countries with excessive risk-taking tendencies. We find support for operational efficiency transmission channels and uncover new evidence on the association between digital FI and banking stability.

The Determinants of Financial Stability of Islamic Banks in ASEAN

Financial stability is one of the drivers of economic growth, while Islamic banking currently dominates in global economic competition compared to other Islamic finance industry. Therefore, it is necessary to investigate the aspects that can affect the financial stability of Islamic banks. The purpose of this study is to analyze how capital structure, profitability, efficiency, and technology affect the financial stability (Z-Score) of Islamic banks in the ASEAN region. The study employs a panel data regretion. It utilizes documentation techniques such as the financial reports of each bank and other publicly available data. Sample selection is done through purposive sampling, resulting in a sample of 19 Islamic banks in ASEAN. The research concludes that capital structure significantly and positively influences stability, while efficiency has no impact on stability, and the financial soundness of ASEAN's Islamic banks is significantly impacted negatively by technology and profitability. Based on the findings of this research, the Islamic banks are required to pay more attention to the management of funds obtained from profitability as well as fund management for technology needs so as not to affect the financial stability of Islamic banks in ASEAN.

Determinants of Bank’s Financial Stability in Pakistan

The purpose of this study is to investigate the role of both internal and external factors in achieving better stability in context of Pakistani banking industry. The internal determinants that this research study have used are bank size, funding risk, liquidity risk, credit risk and return on assets while external variables utilized includes money supply and unemployment rate. The study contains 10 years secondary data over the period 2013-2022 of 24 commercial banks of Pakistan. This study conducted correlation analysis and GMM model estimation for analysis. The findings show that liquidity risk, bank profitability, funding risk and bank size have positive and significant impact on bank stability. On the other hand, credit risk effects negatively bank stability. The result showed that money supply positively affects the stability of banks in Pakistan. On the contrary, unemployment is negatively affecting banks stability. The findings of this study have important implications for policymakers, regulators, banks, investors, and other stakeholders in the Pakistani banking sector. By enhancing the understanding of the factors influencing bank stability, the research contributes to identifying the importance of development of evidence-based policies, risk management strategies, and regulatory reforms aimed at development of a stable and resilient banking system in Pakistan.

Dinamika Perubahan Dasar dan Tebing Sungai Jambu: Studi Kasus pada Sekitar Jembatan Cikuya

Several cross-sections of the Jambu River, particularly around the Cikuya Bridge, have experienced bank collapse phenomena. This paper interprets the issues related to bank collapse and its impact on the flow capacity of the Jambu River, especially around the Cikuya Bridge. Morphological changes were simulated using a sediment transport model implemented in the Hydrologic Engineering Center's River Analysis System (HEC-RAS) 6.3.1, integrated with the ARS-USDA Bank Stability and Toe Erosion Model (BSTEM). The simulation results indicate that over a period of 10 years, the thalweg elevation (the lowest point of a riverbed) of the Jambu River around the Cikuya Bridge is predicted to experience deposition in 17 cross-sections and erosion in 15 cross-sections. The highest deposition occurs at the cross-section below the Cikuya Bridge, with a thalweg elevation change of 0.59 m. This warrants attention as the storage capacity of the cross-section decreases by 7% from the initial condition. Predictions indicate that bank collapse will occur in 7 cross-sections over the next 10 years. This is attributed to the steep slopes of silt and clay banks, exceeding 45 degrees, and the reduced safety factor of bank stability due to groundwater pressure influenced by river discharge fluctuations and tidal effects reaching the Jambu River. Bank collapse impacts the elevation change of the riverbed and adds load to the sediment transport model from the collapsing cross-sections to the downstream sections. Keywords: Jambu River, Cikuya Bridge, Cilacap, sediment transport, bank stability and toe erosion model

Financial distress prediction in Islamic commercial banks: The role of gender, corporate social responsibility, and capital structure

This research empirically tests the influence of women’s presence on the board of directors, Corporate Social Responsibility (CSR) expenditure, and capital structure on the likelihood of financial distress for a sample of 13 Islamic commercial banks in Indonesia from 2019 to 2022. The study employs regression to determine the impact of board gender diversity on financial distress. Altman Z-score model is used as a proxy for financial distress indicator. The result shows that the presence of female director can enhance the possibility of financial distress due to their excessive caution. In addition, CSR can also lead to financial difficulties for the entities because CSR implementations need substantial funding, and undue reliance on debt can also increase the risk of financial problems. These findings have significant implications for governance and risk management in Islamic commercial banks. They stress the need for a balanced approach to board gender diversity, avoiding excessive caution that could lead to financial strain. Banks should align CSR activities with their financial capacity to prevent undue burden and manage debt levels prudently to reduce financial distress. These insights can help policymakers and institutions improve governance, CSR strategies, and financial risk management, enhancing the stability of Islamic commercial banks.

MACROECONOMIC RISKS OF INVESTMENT ACTIVITIES IN UKRAINE'S BANKING SECTOR UNDER MARTIAL LAW AND THE ANTI-CRISIS STRATEGY OF MONETARY POLICY

Introduction. The article analyzes the macroeconomic risks of investment activities in the banking sector of Ukraine under martial law and proposes an anti-crisis monetary policy strategy. The impact of economic instability, inflation growth, and exchange rate volatility on investment decisions of banking institutions is examined. Special attention is given to the role of targeted refinancing as a tool to support lending to strategically important sectors of the economy, such as the military-industrial complex, energy, and logistics. Methods. The study employs general scientific methods of cognition: analysis and synthesis for the assessment of macroeconomic risks; comparison for the analysis of the effectiveness of various monetary policy instruments; content analysis to evaluate the impact of economic changes on banks' investment activity; generalization to formulate recommendations for anti-crisis measures. Results. It has been found that inflation growth and GDP instability significantly undermine the creditworthiness of borrowers, increasing the risks of non-repayment of investment loans and reducing the financial stability of banks. The use of targeted refinancing to support investment lending in sectors critical to Ukraine's economic and defense resilience is proposed, which could become an effective anti-crisis tool. Discussion. The prospects for further research in this field involve a more detailed analysis of targeted refinancing mechanisms as a monetary policy tool aimed at supporting strategic sectors of the economy. Special attention should be given to studying the experience of countries that have faced similar macroeconomic challenges to adapt their successful practices for Ukraine's banking system during wartime. Moreover, it is essential to examine the impact of economic factors, such as inflation and currency depreciation, on the long-term investment activities of banks, particularly in sectors critical to the post-war economic recovery. This will help develop recommendations for optimizing monetary policy to stabilize the banking sector and stimulate its investment activity in the post-crisis period. Keywords: banking sector, martial law, investment lending, monetary policy, macroeconomic risks, targeted refinancing, economic resilience.

Finance and Output Volatity During The Global Financial Crisis

This paper assesses the effectiveness of financial depth and financial inclusion in the mitigation of output volatility during the 2008-2010 Global Financial Crisis. The paper also evaluates whether finance is more effective in countries with more developed financial systems, higher levels of economic developments, sounder banking systems, and better political stability. Employing a cross-sectional dataset covering more than 100 countries, our results indicate the ability of finance in subduing output volatility during the crisis. Our evidence is also concrete in suggesting the success of finance in reducing output volatility in more financially developed, advanced, and politically stable countries. However, the evidence is unclear on whether finance is beneficial for countries characterized by low, intermediate, or high banking stability. In addition to these findings, the preponderance of evidence tends to suggest the better ability of financial usage as compared to financial access in mitigating aggregate fluctuations during the crisis. Finally, our additional analysis reveals that finance functions well in stabilizing output when output volatility is high.

Stability and Financial Performance of Banks in European Countries Bordering the Military Conflict in Ukraine

Stability and Financial Performance of Banks in European Countries Bordering the Military Conflict in Ukraine

Comparative Analysis of Risks and Their Impacts on the Banking Stability of Islamic and Conventional Banks in the MENA Region

This study aims to analyze and compare the impact of risks on banking stability associated with Islamic banks in comparison to their conventional counterparts in the MENA region. In this process, we first examine the correlation between liquidity risk and credit risk. Secondly, we assess whether these two types of risks are related to banking stability within both categories of banks. Using the PVAR (Panel Vector Auto Regression) econometric model on a sample of 110 conventional and Islamic banks in the MENA region, our results indicate that liquidity risk and credit risk exhibit a negative relationship in both types of banks. Furthermore, our findings suggest that there is no correlation between these risks and banking stability in both types of banks. Our conclusions have significant implications for banking institutions regarding the strategies and approaches required to manage these risks and ensure the stability of their banking operations.

The mediating role of intellectual capital on the nexus between diversification, financial stability and efficiency of commercial banks in Ethiopia

PurposeThe main objective of this study is to analyze the mediating role of intellectual capital in the relationship between diversification, financial stability, and efficiency of the banking sector in Ethiopia.Design/methodology/approachSecondary data for this study was obtained from audited financial statements of 17 Ethiopian commercial banks for a decade starting in 2013. A descriptive and explanatory research design with a quantitative research approach was employed. The seemingly unrelated Hierarchical regression analysis is used to estimate diversification’s effect on banks' financial stability and efficiency, considering the interaction between diversification and intellectual capital as a mediating variable.FindingsThe Mediation analysis reveals that asset diversification improves the financial stability of commercial banks when mediated by intellectual efficiency. Investment diversification negatively impacts risk-adjusted return on asset and Z score. Intellectual capital significantly enhances commercial banks' efficiency and financial stability in Ethiopia and mediates the relationship between geographic diversification, financial stability, and efficiency. The mediation analysis also indicates that intellectual capital significantly mediates the relationship between income diversification and efficiency.Practical implicationsThis study highlights the importance of intellectual capital and promotes its strategic allocation by management and regulatory bodies to enhance the financial stability and operational effectiveness of the banking industry in Ethiopia.Originality/value To the best of the researcher’s knowledge, this study is one of the rare attempts to investigate the mediating role of intellectual capital on the nexus between diversification, financial stability, and efficiency of commercial banks in Ethiopia.

The impact of house prices on banking stability in Vietnam: the moderating role of investor sentiment

The impact of house prices on banking stability in Vietnam: the moderating role of investor sentiment

QUALITY OF SUSTAINABILITY REPORTING AND BANK STABILITY: EMPIRICAL EVIDENCE FROM VIETNAMESE COMMERCIAL BANKS

The purpose of this study is twofold. First, we attempt to quantify the quality of bank sustainability reporting (QSR) since the 2016 mandatory sustainability disclosure in Vietnam. Content analysis of banks’ annual reports is performed to assess 11 QSR items that are used to build the QSR index. Second, we investigate whether the quality of sustainability reporting influences banks’ financial stability. Employing a sample of 159 banking firm observations over the period 2016–2021, we document that the quality of sustainability reporting in Vietnamese commercial banks increased from year to year. Importantly, our empirical evidence shows that a higher level of QSR contributes to better bank stability. This result is robust to various estimation methods, different components of QSR, an alternative measure of bank stability, and controlling for reverse causality. Our findings provide important implications for bank managers by highlighting that the enhancement of QSR increases bank stability.

Banking stability multifactor modelling in Armenia using Machine Learning

Banking stability is a sensitive topic in economic literature and a lot of economists are trying to suggest better and better solutions, to foresee banking crises, and respond in a timely manner. Recent advancements in machine learning models as well as the increase in their usability, makes it inevitable their application in banking stability literature, especially when the policy makers are interested in early warning strategy and want to mitigate cumulative or systematic risks. The main concern about using ML models in banking stability tends to be the “Black box” side of neural network models, but this is compensated with their incredible predictive power, if used in a reasonable manner, taking into account best practices in a field. Apart from that, ML is not just limited to NN-s, Random forest approach suggests a way to understand which factors are more useful in the result of prediction.

Socio-economic issues and bank stability: The moderating role of competition

Bank stability has emerged as an area of colossal importance for economic and social well-being, especially in the aftermath of the global financial crisis of 2007–2008. Therefore, this paper examines the impact of socio-economic factors like corruption, political risk, and financial inclusion on the stability of banks. It also investigates whether bank competition interacts with socio-economic factors for the impact on bank stability. Through the use of a dynamic panel estimator and international bank data on country-level indicators spanning 139 nations from 2011 to 2021, our findings indicate that political risk and corruption impede bank stability while financial inclusion promotes it. Subsequent, investigation reveals that competition lessens the detrimental impact of corruption on bank stability while enhancing the stabilizing effects of financial inclusion and political risk. These findings have implications for regulators, government, and bank management in achieving social welfare and bank stability simultaneously.

The Relationship Banking Stability, Exchange Rate, Foreign Direct Investment and Economic Growth in BRICS Countries: A Panel Data Evidence

The Relationship Banking Stability, Exchange Rate, Foreign Direct Investment and Economic Growth in BRICS Countries: A Panel Data Evidence

Analisis Pengaruh Risiko Kredit, Likuiditas, dan Efisiensi Manajemen Terhadap Profitabilitas Bank BUMN, Serta Perbandingan Kinerja Keuangan Bank Bumn dengan Bank Swasta

This research aims to identify the causes of profitability fluctuations in state-owned banks, which significantly impact Indonesia's economic growth. Understanding these risks is crucial to maintaining the stability and competitiveness of state-owned banks against private banks. This identify the influence of non-performing loans (NPL), loan-to-deposit ratio (LDR), and operational costs on operating income (BOPO) on return on assets (ROA) of state-owned banks from 2013-2022. It also compares ROA, NPL, LDR, and BOPO between state-owned and private banks. The study uses a quantitative approach, with multiple linear regression for influence analysis. Then, sample t-tests and Mann-Whitney tests for comparison analysis. It analyzes secondary data from 40 annual financial ratio observations, involving 4 state-owned and 4 private banks. Findings show in state-owned banks that NPL significant negatively impact ROA, LDR has no effect to ROA, and BOPO significant negatively impacts ROA. Together, NPL, LDR, and BOPO significantly influence ROA. Comparatively, there is no difference in ROA, LDR, and BOPO between state-owned and private banks, but there are differences in NPL.

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.

Credit risk and Tunisian bank stability in the Covid-19 wave

<p style="text-align:justify"><span style="font-size:16px"><span style="font-family:Times New Roman,Times,serif"><span dir="ltr" lang="EN-US"><span style="color:black">Banks are at the core of economic functioning in various countries and are the cause of their development in various fields. In a changing environment, they must deal with certain risks and maintain financial stability as the ultimate objective. The primary objective of this study is to examine the correlation between credit risk and bank stability within the Tunisian banking sector, with a specific focus on understanding the moderating impact of the COVID-19 pandemic. To achieve this, we employ several econometric techniques, including panel unit root and cointegration tests, panel Vector Error Correction Model (VECM), Fully Modified Ordinary Least Squares (FMOLS), and Dynamic Ordinary Least Squares (DOLS). Our empirical analysis relies on a panel dataset that encompasses a comprehensive sample of 8 Tunisian banks over 2000-2020. The results of our analysis unveil a significant negative relationship between credit risk and bank stability, indicating that higher levels of credit risk exert a detrimental effect on the overall stability of Tunisian banks. Furthermore, our study highlights that this adverse impact is further exacerbated during the COVID-19 pandemic, suggesting that the pandemic acts as a moderator. The findings of this study hold substantial implications for policymakers, regulators, and bank managers in Tunisia. They emphasize the critical importance of implementing robust risk management practices to mitigate credit risk and bolster bank stability. Additionally, the research underscores the need to consider the unique challenges introduced by external shocks, such as the COVID-19 pandemic, when assessing the overall stability of the banking system.</span></span></span></span></p>