Stability Of Financial Institutions Research Articles

Integrating Advanced Technologies in Financial Risk Management: A Comprehensive Analysis

This paper delves into the pivotal role of advanced technologies in enhancing financial risk management across various domains, including credit risk, market risk, operational risk, and liquidity risk. It meticulously explores the application of machine learning (ML) algorithms and artificial intelligence (AI) in developing sophisticated risk assessment models, portfolio diversification strategies, and regulatory compliance mechanisms, which collectively surpass traditional methodologies in accuracy, efficiency, and predictive power. Through a detailed examination of enhanced Value at Risk (VaR) models, dynamic hedging strategies, and the impact of geopolitical events on market risk, alongside innovative approaches to operational risk mitigation and liquidity planning, this study underscores the transformative potential of technological advancements in financial risk management. It highlights how these technologies facilitate real-time analysis, predictive modeling, and strategic planning, significantly contributing to the resilience and stability of financial institutions in the face of evolving risks and regulatory requirements.

The performance and stability of financial institutions after digital transformation: The importance of regional policies

Competition among financial institutions is extremely fierce. How digital transformation can enhance banks’ competitiveness is a crucial question. In this study, we investigate the relationship between digital transformation and financial institution performance. Based on a sample of all commercial banks in China between 2010 and 2022, this study finds strong evidence that digital transformation improves bank performance. Furthermore, we find that this relationship is more pronounced when a region implements policies that encourage digitalization. Overall, this study contributes to the rapidly growing literature on enterprise digital transformation.

UNMASKING DECEPTION: FORENSIC ACCOUNTING'S INFLUENCE ON FRAUD REDUCTION IN INDIA'S BANKING INDUSTRY

The significance of forensic accounting in fraud reduction cannot be overstated, particularly in a complex financial landscape like India's banking industry. Forensic accounting serves as a crucial instrument in detecting, investigating, and preventing fraudulent activities that pose substantial threats to the integrity and stability of financial institutions. Through specialized techniques like data analysis, financial examination, and investigative methodologies, forensic accountants play a pivotal role in uncovering fraudulent schemes, tracing illicit financial transactions, and providing evidence for legal proceedings. This study delves into the critical role of forensic accounting in combating fraudulent activities within India's banking sector. With a focus on enhancing understanding and awareness, the research sets out three primary objectives. Firstly, it aims to investigate the current landscape of forensic accounting in India, exploring its methodologies, practices, and regulatory framework. Secondly, the study seeks to assess the level of awareness among bank managers regarding the efficacy of forensic accounting in reducing instances of fraud. Finally, it endeavours to analyse the relationship between the demographic profiles of bank managers—such as age, gender, and years of experience—and their awareness of forensic accounting's role in fraud reduction. Moreover, the findings of this study carry practical implications for various stakeholders, including policymakers, regulators, banking professionals, and industry participants. By gaining insights into the awareness levels of bank managers regarding forensic accounting and its efficacy in fraud reduction, policymakers and regulators can develop targeted interventions to enhance training, education, and awareness initiatives within the banking industry. The study's methodology involved interviews with 200 bank managers, allowing for a comprehensive assessment of the impact of forensic accounting on fraud reduction within India's banking industry.

CAMEL Analysis of Commercial Banks in Nepal

This research paper seeks to perform a thorough assessment of the financial stability and efficacy of commercial banks in Nepal, utilizing the CAMELS analysis framework. The CAMEL framework, incorporating Capital adequacy, Asset quality, Management quality, Earnings capability, and Liquidity position, acts as a structured method for assessing the comprehensive health and resilience of financial institutions. By employing this framework to the commercial banks in Nepal, this study offers crucial insights into the merits and demerits of the country's banking sector. In this investigation, a quantitative, descriptive, and analytical research design is employed to execute the CAMEL analysis of commercial banks in Nepal. The study relies on secondary data, sourced from published financial reports, annual statements, and regulatory submissions of commercial banks in Nepal. A purposive sampling technique is utilized to choose a representative sample of commercial banks in Nepal. CAMEL analysis of commercial banks in Nepal yielded a favorable evaluation of financial stability. The majority of banks showcased commendable performance in various components of the framework, reflecting a predominantly robust and stable banking sector. Nonetheless, certain areas, particularly for smaller banks, necessitate vigilant observation and specific regulatory actions. The outcomes of this study can aid policymakers, regulators, and industry professionals in making enlightened decisions, addressing potential risks, and enhancing the overall financial robustness of the banking sector in Nepal.

The effects of financial institutions on the green energy transition: A cross-sectional panel study

A growing body of literature has focused on exploring the potential determinants of the green energy transition. This study focuses on financial institutions’ roles and efforts. This study is probably the first study to be conducted on a sample of 214 countries/regions worldwide between 1960 and 2017. We use four proxies to measure the performance of the four aspects of financial institutions: financial depth, access, efficiency, and stability. Apart from the global sample, we conduct panel data analysis on a subsample of countries/regions at different income levels. A panel-corrected standard error technique was adopted to obtain robust standard errors. Empirical evidence supports a strong causal relationship between financial institutions and green energy for the global sample. Depth and access to the development of financial institutions have a substantial impact on the green energy transition. However, there are considerable differences in the estimates for the different subsamples. The positive effect of high-income countries/regions is significantly higher than the global average. This demonstrates that high-income countries/regions with well-developed financial systems can provide a particular mix of financial instruments for green energy investment and innovation. However, the stability of financial institutions seems to hinder the further development of green energy deployment. Moreover, in low-and lower-middle-income countries/regions, the development of financial institutions hinders green energy transition, and inadequate financing conditions remain a major challenge. Finally, the policy implications of these findings are provided.

Testing The Resilience of Sharia Bank During Covid-19 Pandemic

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

Capital Regulation and Market Competition in the MENA Region: Policy Implications for Banking Sector Stability During COVID-19 Pandemic

This article investigates the impact of capital requirements and market competition on the stability of financial institutions in the Middle East and North African (MENA) region. We test the hypothesis that capital requirements significantly affect the risk behaviour of both Islamic and conventional banks in the MENA region. We also investigate the moderating effect of market power and concentration on the relationship between capital regulation and bank risk. We find that capital ratio has a strong positive impact on conventional banks’ credit risk, whereas this effect is insignificant in the sample of Islamic banks. Our analysis indicates that, for the conventional banking sector, the increase in the capitalization level is negatively linked to bank credit risk only when banks’ level of market power is high. Regarding the Islamic banks’ behaviour, we find that the relationship between capital and credit risk is weakly moderated by banking competition. This means that Islamic banks are less sensitive to the market’s competitive conditions in the MENA countries, as they still apply their theoretical models, based on prohibition of interest. Our findings inform regulatory authorities concerned with improving the banking sector’s financial stability in the MENA region to strengthen their policies and force banks to better align with regulatory capital requirements during the COVID-19 pandemic.

Financial Development in Developing Countries and Its Impact on Economic Growth between 2008 and 2017

This article examines how the level of financial development has changed in the ten years between 2008 and 2017 in connection to the most significant events in the global economy and finance and how financial development has influenced economic growth in developing countries. The study measures financial development following the World Bank (2020) approach and using indicators of financial access, financial depth, financial efficiency and financial stability, corresponding to financial institutions and financial markets. Based on a two-way fixed effects model, we find that financial development has positively and significantly contributed to economic growth in these countries during the ten years between 2008 and 2017, through increased access of individual consumers and firms to financial products and services. Other variables such as the depth, efficiency and stability of financial institutions and markets do not correlate significantly with the economic growth of developing countries between 2008 and 2017. This paper concludes that the access to financial institutions for individuals living in developing nations is favourably and significantly connected to economic growth in these countries.

IFRS 9 and its impact on the stability of financial institutions

This paper deals with the mandatory implementation of IFRS 9 – Financial Instruments: Recognition and Measurement, effective as of January 1, 2018, a possible result of which might have been a steep increase in loss allowance on bank receivables that could threaten the banking sector. This increase was reported in preliminary surveys of the top four accounting companies. The aim of this paper was to investigate the first factual data available from the interim financial statements of banks during 2018. Using the Wilcoxon Rank Sum test, the impact of this standard was evaluated to determine whether the expected increase in loss allowance produced a significant change. The test results confirmed the hypothesis that the increase was not significant. Therefore, the mandatory implementation of IFRS 9 – Financial Instrument: Recognition and Measurement did not result in a significant change in the classification of bank receivables and thus did not jeopardize the financial stability of the banking sector. In addition to the impact of the new standard on the stability of financial institutions, this paper also provides an overview of the most fundamental changes in the area of financial instruments.

The Economic Efficiency of Traditional and Islamic Banking (a Comparative Analysis of the Turkish, Azerbaijani, and Iranian Banking Sectors)

The article attempts to develop a methodology for a comparative assessment of the economic efficiency of banks, including traditional and Islamic banking models. The assessment shows that the stability of financial institutions in Azerbaijan is lower compared to banks where Islamic banking is used. The assessment also shows that there is a strong dependence of the GDP growth rate on the sub-indices of the effectiveness of financial institutions in Azerbaijan, Turkey, and Iran. The methodology of linear regression and a composite index of the economic efficiency of banks are applied. The assessment shows that the influence of the stability of the financial system on economic growth in Azerbaijan, Iran, and Turkey is different. The economic growth rate and the ratio of bank loans to bank deposits in Azerbaijan and Turkey are positively related, but negatively in Iran.

INTERNATIONAL STANDARDS FOR BANK CAPITAL REGULATION

Abstract. The paper analyzes the evolution of the introduction of international standards for bank capital regulation. The aim of the research is to study international standards for bank capital regulation and their impact on financial stability and sustainability of domestic banking systems. The 2007—2009 Global Financial Crisis was perhaps the greatest banking and financial crisis since bank failures and the financial panic of the Great Depression in early 1930s. According to academics and professionals, there has been much debate over the last decade as to whether the 2007—2009 banking crisis was primarily a solvency crisis or a liquidity crisis. Capital adequacy of banks today is the main indicator of increasing society’s confidence in banking systems. The flexible and balanced implementation of Basel Committee on Banking Supervision (BCBS) recommendations on the assessment of bank capital adequacy is of particular importance in the context of the deepening economic crisis caused by COVID-19 quarantine restrictions. Regulation of bank capital is primarily settles by the ability to execute basic functions inherent in it. A number of shocks in connection with the crisis require the renewal and search for a new paradigm of regulation, which today is focused on achieving financial stability, overcoming pro-cyclicality, especially in the banking sector. One of the latest developments in the field of bank capital regulation has been the implementation of international banking supervision standards recommended by BCBS, which have been transformed from Basel I, Basel II, Basel III, Basel 3.5 to Basel IV. The new ideology suggests that in times of financial and economic crisis or in anticipation of growing uncertainty in the economy, it is necessary to abandon the idea of bank capital management and the creation of financial reserves to maintain liquidity and stability of financial institutions. These measures will not be able to protect the bank from default and bankruptcy. This ideology has become a new paradigm of effective banking regulation, which can be formulated as an accepted set of three vectors: risk; risk management; risk-oriented supervision. Keywords: bank capital, international standards, financial stability, liquidity, banking crisis, banking regulation. JEL Classification E44, F30, G15, G21 Formulas: 1; fig.: 4; tabl.: 3; bibl.: 22.

CURRENT TRENDS IN ANTI-CRISIS MANAGEMENT OF THE BANKING BUSINESS

Introduction . The global financial crisis of 2007-2008 gave impetus for global changes in the banking business in the world, caused a total revision of capital reserve norms, serious changes in the economic, credit and financial spheres, as well as structural changes in the banking services environment and increased requirements for liquidity and stability of financial institutions. Large international banking groups were forced to adapt to the new competitive environment, which is characterized by a significant decline in profitability indicators, revolutionary shifts in the financial services market associated with the introduction of new banking products and the emergence of new players in the banking market. Purpose Analysis of the main trends in the development of anti-crisis management in the banking business and the formation of models for early warning of banking crises. Results . Based on the analysis of the role of state capital in the banking system in many countries, the article focuses on the significant share of state capital in the Ukrainian banking sector, where the share of state-owned banks is several times larger than in Eastern European countries. Despite the fact that the share of state-owned banks in net assets continued to decrease during 2020, more than half of the assets of the Ukrainian banking system belong to state-owned banks. Therefore, the article proposes the development of a state strategy for the privatization of state banks in Ukraine. It was argued that in order to avoid or at least mitigate the consequences of future financial crises, it is necessary to formulate a clear theoretical and economic basis for the driving factors of the crisis and to have effective models for their early warning. The article shows that such models should show in the early stages of an increase in financial imbalance and systemic risk in the country's economy. Originality. The article analyzes modern trends in the development of anti-crisis management systems in the banking business in the context of the new requirements of national and international regulators and standards III. Special emphasis was placed on comparing the features of anti-crisis management in banking in Ukraine, global systemically important banks and the banks in countries of Eastern and Central Europe. Conclusion. The analysis showed that banks have made significant changes to their business models since the global financial crisis. The profitability of almost all business lines of banks has become significantly lower than the pre-crisis indicators, while the greatest decrease in profitability is observed in investment and corporate banks, which were most affected during the crisis and faced the most significant increase in the requirements of Basel III and national regulators. A significant part of the state capital in the Ukrainian banking system carries many risks in the long term, since such a policy of mass nationalization of commercial banks and, as a result, the domination of state capital in the banking business may make sense only in the short term, while in the long term it can lead to a decrease in the efficiency of banking sector.

Roles of the CBN and NDIC in Nigeria's Monetary Policy and Regulation

The stability of financial institutions in coordinating and navigating the affairs of a nation’s economy is considered as a bedrock of economic development for any nation. The need to create an efficient financial system anchored on financial stability and effectiveness has become more imperative overtime in order to ensure economic growth. There is also the imminent need for financial institutions (Traditional and non-traditional financial institutions) to acclimatize to the trends of financial digitalization across the globe. The Central Bank of Nigeria (CBN) and the NDIC (Nigeria Deposit Insurance Corporation) are two financial bodies ladened with the responsibility of overseeing and managing the system of banking in Nigeria. This paper seeks to examine the roles of these two financial bodies in Nigeria in ensuring financial stability in the country’s economy.

Performance Of Financial Institutions In Five Sub-Saharan African Countries

The purpose of this study is to investigate the performance of financial institutions in five Sub-Saharan African countries: Kenya, Nigeria, Namibia, Rwanda and Senegal. The investigation is based on four proxies towards performance namely: financial access, financial depth, financial efficiency and financial stability. The overall proxies are composed of thirty variables. There are four objectives in the study; the first objective has examined access and information of financial services in financial institutions of Sub-Saharan African countries. The second objective investigated and measured depth of financial institutions. The third objective evaluated efficiency of financial institutions in Sub-Sahara Africa. The last objective was intended to measure the stability of financial institutions in Africa. We created a development of financial performance model describing the proxies and variables in this study. The main analysis of the study is Mean calculation and regression analysis by using weighted Least Squares multiple regression analysis (WLS). This study investigated secondary data. The data was analyzed by using Excel software and Statistical Package for Social Sciences (SPSS) in descriptive statistics. The result of all target countries except Nigeria is significant in financial access. Result also showed significance in financial depth of all five target countries. The financial institutions of all five target countries are inefficient. Also the result of financial stability in financial institutions of target countries showed insignificance except Rwanda.

Effect of Climate Change on Financial Institutions and the Financial System

Climate change is emerging as an important issue, and has been a cause for increasing uncertainty in the business sector. It is important to understand the effects of climate change events on financial institutions and the financial system. This study analyzes the effect of climate change on financial institutions and the financial system, and show that climate change has serious consequences on the stability of financial institutions through its effect on the counterparties and clients of financial institutions. Climate change also has serious consequences on the stability of the financial system through its effect on financial institutions.

Market power and stability of financial institutions: evidence from the Italian banking sector

Purpose This paper aims to explore the relationship between bank market power and stability of financial institutions in Italy between 2001 and 2012. The authors first test the existence of a U-shaped relationship between market power and financial stability. Second, they regress the market share indicator on bank risk-taking to underline whether financial stability is affected by increasing or decreasing the market power of banks. Third, they explore whether this relationship is affected by the size, level of capitalization and credit insolvency of banks. Design/methodology/approach Relying on highly territorially disaggregated data at labor market areas level, the authors estimate the impact of bank market power and other explanatory variables on a proxy of risk taking behavior such as the banking “stability inefficiency” derived simultaneously from the estimation of a stability stochastic frontier. Bank market power is taken into account through an individual measure based on loans. Financial stability is calculated through the Z-score. The authors use, as risk-taking measure, the stability inefficiency whose estimation approach is the stochastic frontier analysis. Findings The empirical evidence shows that the inefficiency of financial stability is found to be U-shaped related with respect to the measure of market power. Bank size is an essential factor in explaining the relationship between bank market power and risk-taking. Cooperative banks have fewer incentives to gain market power to better perform in term of risks. The reform of the cooperative banks that took recently place in Italy is not supported by the data. Originality/value The relationship between bank market power and financial stability has been analyzed using a rich sample of cooperative, commercial and popular banks in Italy over the 2001-2012 period. The authors rely on labor market areas being sub-regional geographical areas where the bulk of the labor force lives and works. The paper investigates the market power-stability link considering both cooperative and non-cooperative banks. Indeed, specific attention has been paid on cooperative banks because of their mission in favor of the local community as only few studies, to the best of the authors’ knowledge, examine cooperative banking.

Determinants of Off-Balance Sheet (OBS) Activities: A Case of Selected Retail Banks in Malaysia

The present paper examines factors influencing the Off-Balance Sheet activities of selected commercial banks in Malaysia for the period 2004- 2014. OBS activities are an integral part of financial institutions in response to the needs of businesses for different types of guarantee that have conflicting implications on the stability of financial institutions. Data collected on selected banks from the Bankscope database was analyzed using the Generalized Method of Moments (GMM) regression. Specifically, the study built its analysis on three main recognized determining factors namely: (1) liquidity motives, (2) credit risk transfer motive, (3) profitability motives, and (4) capital arbitrage motive. The findings thus suggest that the selected banks mainly used OBS instruments for capital arbitrage purpose, enhancing operational efficiency and managing loan portfolio risks. The findings further suggested that its usage for capital arbitrage purposes may undermine the regulatory measures of accurately estimating and monitoring the risk of banks. The findings thus offer significant practical and policy implications that can help to enhance financial stability. Keywords: off-balance sheet, liquidity, credit risk transfer, profitability, capital arbitrage

DIRECTIONS OF DEVELOPMENT OF THE FINANCIAL SERVICES MARKET OF UKRAINE

Development of the financial services market is an important component of the national economy’s development. Within this market, credit and investment resources are formed, which are the basis of economic development of the real economy sector of the state. It is this that determines the importance of creating conditions for improving the efficiency of financial institutions, which become intermediaries between persons who have free funds and those economic entities that they need. The outlined justifies the relevance of the topic. Consequently, taking into consideration the objective of the study, the following aim of its implementation was set: to identify and substantiate the main determinants of the development of the financial services market in Ukraine. To achieve this goal, the following tasks were set and solved: to identify the main, most important, measures of transformation of the environment of financial institutions functioning; to substantiate the essence of such measures and the peculiarities of their implementation; to specify basic actions within the limits of separate determinants of the financial services market development, to describe their applied character. Method. In the course of the research, a range of different scientific methods was used. Among the general techniques, it is necessary to allocate methods of observation, comparison, abstraction. It is advisable to include the method of economic analysis, synthesis, system approach, content methods, and event analysis in specific research methods. Results. Universal priorities of financial services markets development in different countries are determined and systematized, the analysis of which made it possible to investigate perspective determinants of the development of such a market in Ukraine, peculiarities of their introduction into the functioning of the financial services sphere are described. Among these measures are the following: increase in the stability of financial institutions, increase the transparency of the functioning of producers and consumers of financial services, raising the level of financial literacy in society, reforming the state regulation system of the activities of financial intermediaries, the formation of the trust infrastructure system. Taking into consideration the received scientific outcomes, the justification of peculiarities on the implementation of these priorities in the system of the financial services market functioning in Ukraine is conducted. Practical implications. The research results obtained in the course of the research implementation regarding the possibilities of changing the financial services market for improving the efficiency of financial institutions work have an applied character, and their implementation will make it possible to form a new environment for the functioning of such economic actors. This will facilitate the transformation of financial resources to increase the formation of investment and loan funds. The results obtained can be used by public authorities that regulate the activities of financial institutions in the process of developing new strategic documents for the development of the financial services market in Ukraine. Value/originality. The conducted research is relevant, considering the significant impact of the financial services market on the development of the national economy, the proposed measures for the development of such a market are applied and can be used by public authorities in the regulation of the activities of financial institutions. This research has been conducted within the framework of the scientific work implementation Department of Finance, Banking and Insurance, Chernihiv National University of Technology, Ukraine on the following topics: “Financial stability of economic systems in crisis conditions of management” (No. 0115U001149) and “Development of financial intermediaries in the turbulent conditions of the national economy’s functioning” (No. 0115U001149).

The causal relationship between financial development and economic growth: an experience with BRICS economies

In recent years, the emerging economies of the world, particularly those of the BRICS countries, have attracted increasing attention for their contribution to the growth of the global economy. These countries have initiated significant reforms within financial institutions and financial markets that are vital to the expansion of the financial sector and thus to the countries’ economic growth. In this context, this study aims to determine whether the development of the financial system in these economies is the cause for their growth. To measure the financial system development, the study constructs three broad-based indices—the financial institution development index, financial market development index, and financial system development index—for each economy using principal component analysis, with the factors of depth, efficiency, and stability of financial institutions and financial markets as variables. In addition, we use the Toda–Yamamoto causality test to conduct this exercise for the period 1996–2016. The results of the study reveal that there is no uniformity in finance and growth causality among the BRICS countries.

SELECTED FIRM CHARACTERISTICS AND FINANCIAL INTERMEDIATION EFFICIENCY OF DEPOSIT TAKING SAVING AND CREDIT CO-OPERATIVE SOCIETIES IN KENYA

There has been growing concerns over the financial soundness of SACCOs with a few having collapsed in the recent past. Empirical evidence indicates that there exists a strong association between efficiency and stability of financial institutions and that an efficient banking sector is better able to withstand negative shocks in case of financial crises. The study first sought to evaluate the financial intermediation efficiency of deposit taking SACCOs (DTSs) and subsequently determine the relationship between selected firm characteristics and financial intermediation efficiency. Specifically, the relationship between asset quality, income diversification, profitability & size and financial intermediation efficiency was assessed. A balanced panel data for 103 DTSs over the period 2011-2014 was collected and analyzed using a two staged methodology. In the first stage, efficiency scores were generated using data envelopment analysis (DEA). DEA Computer Program Version 2.1 was used to generate the efficiency scores. In the second stage, firm characteristics were regressed on the efficiency scores using fixed effects panel regression model. The bias corrected efficiency score were used instead of conventional DEA scores and incorporated into EViews version 8 for regression analysis. Fixed effect model with robust standard errors was used for analysis. The study revealed that asset quality had a direct relationship with intermediation efficiency. This implies that as the asset quality improves, efficiency of a DTS increases. Diversification was found to be hurting efficiency. More profitable DTSs were found to be more efficient indicating that profitability is efficiency enhancing. The results also revealed a positive relationship between size and efficiency. The study recommends that managers and policy makers should concentrate on how to improve the managerial efficiency and also increase the size of SACCOs. Policy framework should also be directed towards encouraging DTSs to consolidate their operations and limit their diversification into noninterest income.