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Averting the risk of falling short on the expected profitability of a bank requires the knowledge of the underlying determinants. Knowledge of long-run underlying determinants of profitability assists banks in comprehensive planning. In this backdrop, the paper seeks to identify the long-term fundamental risk factors and their impacts on their profitability. The FM-OLS regression method is employed using annual data on the components of profitability as well as internal and external determinants of profitability of Amalgamated Bank of South Africa (ABSA) bank from 1998 to 2014. The study is particularly importance since bank-specific studies aimed at identifying long-run fundamental factors of profitability has not been given much attention in literature. Evidence from the study indicates that profitability of ABSA is cointegrated with its determinants. It is further observed that, with the exception of inflation and GDP, all the determinants have significant long-term impact on profitability. However, although size has significant impact on net interest margins, its impact on return on equity is insignificant. The results further suggest that capital and stock market capitalization pose risk to aggregate profitability of ABSA. It is therefore recommended that in future, ABSA should resort to optimal equity financing to maximize its expected profitability.

Bank profitability plays a significant role in the growth and development of an emerging economy. The purpose of the study was to examine the impact of bank characteristics, industry concentration and macroeconomics variables on commercial bank profitability in Bangladesh from 2007-2017. Bank profitability is proxied by return on assets (ROA), return on equity (ROE) and net interest margin (NIM). The study is based on secondary data and Hausman test has been performed using STATA software in favor of fixed effect modeling. Panel regressions shows that cost efficiency has significant negative impact on ROA and NIM. The positive impact of loan to deposit ratio with ROA suggests that efficient fund management including investment and assessed expenditure should be emphasized. Bank size has significant negative impact on all the measures of profitability, which indicates that monopolistic competition will reduce banking profit. Credit risk has significant positive impacts on ROE. Industry concentration measured by CR3 is positively related with ROE and has significant negative relation with bank profitability (ROA). Among macroeconomic variables inflation has significant positive and bank spread has significant negative impact on ROE. The coefficients of all the macroeconomic variables have been found to be significantly related to bank profitability while measured by NIM. Our study recommends further research with other explanatory variables such as, corporate governance, corporate social responsibility (CSR) and deposit insurance to accelerate the model and construct the econometric model by using structural equation modeling, mediation effect modeling etc.

This study aims to examine and analyze the influence of interest rates, exchange rates and capital structure on profitability in state-owned and private banking go public in Indonesia. This research is quantitative research based on the study of empirical rational principles. Collecting data using secondary data with purposive sampling technique, the sample consists of Commercial Banks Business Group (BUKU IV) with core capital > Rp 30 trillion. The data analysis technique used panel data regression analysis using EVIEWS version 11 software. The results showed that the interest rate had a positive and significant effect on banking profitability; Exchange Rate has a negative and significant effect on Banking Profitability; Capital Structure has a positive and significant effect on Banking Profitability; Interest Rate, Exchange Rate, and Capital Structure simultaneously have a positive and significant effect on Banking Profitability

The banking sector in Sri Lanka has been portrayed by significant changes in the past few decades. It is widely perceived that competition in the Sri Lankan banking sector has improved since the introduction of the financial sector reforms in the 1990s. By applying Panzar-Rosse (PR) approach to test the degree of competitiveness, this paper assesses the validity of this claim in the context of the Sri Lankan banking sector during 1996-2018. The sample covers a broader set of bank-level panel data of the whole commercial banking sector which comprised of 25 licensed commercial banks. The EGLS procedure applied in this study revealed that during the stated period, the Sri Lankan banking sector had been moderately competitive.  Further analysis also disclosed that there is no significant difference between the state-owned banks and private banks regarding their degree of competitiveness, as well as their temporal dynamics. Another striking observation revealed in this analysis is the lower level of competitiveness among foreign banks compared to the competitiveness of local banks. The Competitiveness of the Sri Lankan banking sector however is characterized by non-price competition, as on many occasions the interest rate depends on government policies. Hence, this study provides new insight into the nature of financial sector competitiveness in underdeveloped countries. The outcome of the research implies the necessity of attempts of all banks towards re-aligning their strategies to attract and retain customers. This would be the major challenge that banks face in accomplishing a higher level of competition in the banking industry in the future.   

The main purpose of this study is to measure up to what extent the independent factors defined by capital adequacy ratio, non-performing loans ratio, cost-income ratio, liquidity ratio, and loans-to-deposits ratio impact the financial performance of sixteen commercial banks operating in the United Arab Emirates using panel data for the period of 2013-2019. The secondary data was collected from banks and examined by applying standard descriptive statistics and the random effect model for hypothesis testing. It is concluded from the regression outcomes that non-performing loans ratio and cost-income ratio have a significant negative impact on commercial banks profitability in the United Arab Emirates, while capital adequacy ratio, liquidity ratio, and loans -to-deposits ratio all have a very weak positive relationship on the return on assets but they are not determinants of bank’s profitability due to the insignificant statistical impact on it. It is therefore suggested that to enhance financial performance and minimize the risk of non-performing loans in the future, banks must watch very carefully the loans’ performance and analyze thoroughly the clients’ credit history and ability to pay back their debts prior to any approval of loan applications. Furthermore, banks should continuously improve their assets utilization, liquidity, and techniques of managing operating costs, improve the impact of capital adequacy, and the use of deposits for lending activities from a weak positive impact to a significant positive impact on their profitability. The researchers recommend that future studies on credit risk management influence on banks’ financial performance should consider more independent variables and longer periods of study such as twenty or thirty years to have more accuracy and generalized results.  

Liquidity risk is the potential that an entity will be unable to acquire the cash required to meet its short and intermediate-term obligations. Deposit-taking Savings and Credit Cooperative Organisation (SACCOs) face liquidity risk when they are unable to fund their operations and lending requirements to their members as and when circumstances demand. Given that liquidity is a key phenomenon on the optimal functioning and financial performance of deposit-taking SACCOs, this study critically analyzed the effect of liquidity risk on the financial performance of DT SACCOs in Kenya. The study used a descriptive survey design and employed regression methods to model the relationship between liquidity risk and financial performance of DT SACCOs. The data were analyzed at a 5% level of significance. The study findings revealed that at a 5% level of significance, liquidity risk had a statistically significant influence on the financial performance of deposit-taking SACCOs. Basing on the findings, DT SACCOs are encouraged to focus on enhancing the mobilization of deposits to ensure that an asset portfolio that minimizes liquidity risk is maintained.

Despite core banking, banks also engage in off-balance-sheet (OBS) market activities. In many developed banking industries, OBS activities have grown to be significant during the last two decades. This paper provides rather scarce evidence on the competitiveness among banks for OBS activities and its impact on the degree of banking sector competition in Sri Lanka. Panzar-Ross H statistic approach employing in this study to estimate bank competition used a comprehensive set of bank-level data of the whole commercial banking sector in Sri Lanka covering the period 1996-2018. The first-round analysis of the study uncovers substantial differences among banks concerning the OBS activities. EGLS panel estimation procedure applied in this study provides evidence for a lower level of competitiveness among Sri Lankan banks for OBS activities. More interestingly, the findings further reveal that the degree of competitiveness for OBS activities has a significant positive impact on the overall competitiveness of the banking sector in Sri Lanka.  These results suggest banking institutions re-visit their business models with greater emphasis on nonconventional banking activities in enhancing bank-level efficiency and hence positively contributing to the overall competitiveness of the banking sector.

This paper provides rather scares evidence on the nexus between bank competition and economic growth in a unique developing economy; Sri Lanka for the period 1996-2018. The effect of competition in the Sri Lankan banking sector on economic growth, and the mechanisms through which competition affects growth are analyzed in the present paper. The VEC model used in this study was aimed at capturing independently the short and long-term effect of bank competition on economic growth. The competition is measured with Pazar-Ross H- Statistics. Contrary to the common wisdom, the study found evidence for negative effects of bank competition, on economic growth in the short run. However, in the long run, this effect is strong and positive. Further, the statistical results of this paper revealed that higher bank competition channels economic growth through interest rate and bank efficiency. These findings have important policy implications as it gives great insight into the complexity of competition related conduct in developing countries.

This paper provides interesting insights into the practices of banks and institutional setting in Sri Lanka. The sustainability and stability of banks that makes up an economy’s banking system should be sound at all time. This paper aimed at analyzing the determinants of banking sector stability in Sri Lanka. The study used a broad set of macro and bank level data covering 22 commercial banks for the period 1996-2016. The fixed effect GLS panel data model tested in this paper sets the relationship between bank stability measure; Z-score and business environment which includes bank characteristics and the elements of macro environment. The analysis of the study revealed lower level of Z-scores and thus lower level of bank stability, indicating a higher risk associated with the commercial banking sector in Sri Lanka.  From among the variables tested, strong evidence was found for a positive effect of bank efficiency on bank stability and a negative effect of credit growth on bank stability. At macro level, bank stability is promoted at a higher rate when the economy is more developed and stable. The results imply that efficiency of commercial banks needs to be further improved and regulatory and policy environment should be strengthened to manage the credit growth at the bank level. Further, it is suggestive to strengthening bank supervision and other financial infrastructure in order to ensure sustainability of the banking sector. Thus, the present paper contributes the current banking literature by unveiling the explicit and unforeseen economic implications associate with individual bank operations and macro imbalance which are particularly unique in underdeveloped countries.

Referring to the provisions of Law Number 7 of 1992 and its amendments to Law Number 10 of 1998 concerning Banking, it is explained that a Bank is a business entity that collects funds from the public in the form of deposits and distributes them to the public in the form of credit and or other forms of to improve the standard of living of the wider community so that the banking industry greatly affects the overall stability of the economy because banking institutions are intermediary institutions that bridge people who do not need their funds (surplus) to be deposited in banking institutions as deposits and distributed by these institutions to people who need them in a productive form of distribution. The role of banking institutions is systemic; in other words, banking is an important part of the economic system which will cause a multiplier effect if it is not healthy or in this case, it becomes a failed bank. The main function of banking in macroeconomic policy infrastructure is indeed directed in the context of how to make money effectively and efficiently to increase economic value, which requires the role of regulation in the economic sector as a rule for the essence and existence of banking institutions in carrying out their operations. This study is normative legal research that uses several approaches namely: the statute approach, the case approach, the historical approach, and the conceptual approach carried out with juridical concepts of banks, failed banks, bank restructuring, macroprudential and microprudential. The objective of this study is to comprehensively explain the model and system for rescuing failed banks that meet the benefits principles.

This paper researches the impact that shadow banking in China has upon credit creation and the potential effectiveness of monetary policy. Using a credit creation model, we derive the effect that shadow banking has upon the money multiplier and the money supply. The model shows that shadow banking can change the money multiplier, potentially increasing it during an expansion and decreasing it during a contraction. Introducing shadow banking in a CC-LM model results in a shift of the CC and LM curves resulting in a higher equilibrium output. A vector autoregressive model is used to empirically estimate the impact of shadow banking deposits' growth rate on the growth rates of the broad money supply, GDP, and the CPI. The results show that shadow banking's credit creation function in China has a pro-cyclical characteristic, potentially reducing the money supply's controllability and increasing the difficulty in effectively regulating monetary policy. This paper introduces shadow banking into the currency creation process of traditional commercial banks, accounting for the reserve requirement ratio, the excess reserve ratio, the shadow bank leakage rate, and the reserved deduction rate. Future research can determine whether coordinating monetary policy and leverage ratio regulation mitigates the impact of shadow banking. Another area of research is how the shadow banking of non-financial companies affect monetary policy.

Financial institutions and banks are required to follow mechanisms to monitor the positions and create stimulas for sensible risk-taking by divisions a well as individuals. Risk measurement comprises of the quantification of risk exposures, whereas risk management demonstrates to the overall procedures by which managers fulfill these needs to identify the risks and recognise the category of the risks it faces. This research targerts on the economic instability faced by banks in financial arena in terms of the crises affairs in regard of economic distress. Here, the methodology followed is based on the CAMELS framework variables. CAMELS is a short form stands for: capital adequacy (C), asset (A), management (M), earnings (E), liquidity (L) and sensitivity to market risk (S). Based on these nomenclature, a couple of variables should be selected, such as capital asset ratio, cost income ratio, non-performing loan, non-interest income as component series and return on asset (ROA) as the reference series to identify turning points of economic volatility in banking sector of Bangladesh. Thus, by forecasting the directional deviations it could make financial policymakers aware of the changes at early stage in financial markets and banking industry and privilege them to undertake precautionary steps for preventive purposes. The constructed MPI should have a incredible lead time of about 5 to 7 months on an average in case of prediction against leading for the reference series. By renovating financial efficacy of venture banks, Bangladesh also should recover their subsequent banking system to execute these suggestions.

In perspective of the economic vulnerability faced by banks in financial sector, this study mirrors the methodology used by Shumway (2001) – the dynamic hazard model that is able to forecast systemic risk in financial market arena. Here, the terminology followed is based on the CAMELS framework variables: capital adequacy, asset, management, earnings, liquidity and sensitivity to market risk. The objective of this study is to construct a macroprudential indicator (MPI) for the case of Bangladeshi financial market. The result will then be tested for robustness with macro-stress test. Lagged independent variables will be used in the simple hazard model to allow early prediction of MPI in the year in which the crisis happens. The empirical findings can be used as a guideline for the Bangladesh Government and policy makers in accessing, examining and forecasting the health of the Bangladeshi financial system and formulate suitable financial system policies for control. MPI generates information about systemic risk allowing the detection of potential economic crises functioning as an early warning indicator. Government and policy makers will be able to make early preparation in cushioning any potential crises by means of the MPI. Thus the impact of the crises could be minimized and eventually reduce its impact on the Bangladesh economy. The specific objectives are to assemble a novel MPI that is able to recommend early signals of financial market vulnerability, to identify the MPI turning points and establish a comprehensive reference chronology for Bangladeshi financial market and to evaluate the predictive performance of newly constructed MPI on characterizing Bangladeshi financial sector.

This paper attempts to reveal how several credit risk factors are affecting the profitability of commercial banks considering the econometric models estimated with Random effect, Fixed effect, Pooled OLS and Cross-sectional Generalized least square (GLS) method followed by dynamic panel data model estimated with one-step GMM (generalized methods of moments) approach to incorporate the issue of endogeneity, unobserved heterogeneity and profit persistence of data set collected from annual report of banks covering from year 2010 to 2019 in Bangladesh. We have also adopted several diagnostic checks such as Model specification test, test of heteroskedasticty, cross sectional dependence test followed by test of autocorrelation and unit root test to examine the validity of the models selected for this study. The first part of our empirical investigation of the estimated models considering all methods reveals that out of all the independent credit risk factors such as Total loans to total assets ratio, Total loans to equity ratio, NPL to total loans, NPL to Total equity ratio, Provision for loan losses to total equity, total equity to total assets ratio, Total loans to total deposits ratio and provision for loan losses to NPL ratio, only provision for loan losses to NPL ratio is significantly affecting the dependent variable measured with NIM (Net interest margin) ratio of banks under fixed effect method. The next part of our empirical results of estimated models considering same methods divulges that NPL to total loans ratio, NPL to Total equity ratio and Provision for loan losses to total equity are also significantly affecting the dependent variable measured with ROE (Return on equity) of banks. The third segment of our empirical findings of estimated models considering same approaches shows that only NPL to total loans ratio is statistically significant under all methods but the NPL to total equity ratio is significant under fixed effect and GLS method and Provision for loan losses to total equity is significant under GLS method only in explaining the changes in ROA (Return on equity) measuring profitability of banks. Further investigation reveals that the dynamic impact of the said credit risk factors on profitability measured with ROE of banks has been successfully adopted by one-step system GMM approach considering all conditions required for estimation.

It has always been believed that government ownership would lead to bad financial performance and overstaffing in any organization. This study aims to examine the effect of government ownership on staffing level and the financial performance of Kuwaiti bank over the period 2010-2018. Using the financial data of ten banks listed at Kuwait stock exchange (KSE), results shows that there was s statistically significant direct relation between government ownership and overstaffing and statistically significant inverse relation between government ownership and the financial performance of banks measured by return on assets (ROA). On the other hand results show that there was no relation between overstaffing and the financial performance of Kuwaiti banks.

This research examined bankers’ perceptions of environmental sources of financial risks and its impact on commercial banks in Ghana. Primary data was collected from a purposive sample of ninety-six (96) middle–level bank managers using structured questionnaires. Time series secondary data on banking performance (denoted as ROA and ROE) and stability (denoted as CAR and NPLR) and growth of five major industrial businesses (including agriculture, mining, construction, manufacturing, and trade) as the environmental sources of financial risks, for a period of 13 years (2006-2018) was further obtained for analysis. Data was analyzed using the sample t-test and the multivariate dynamic panel regression model. The results show that, in bank lending, mining was perceived to be the topmost source of indirect environmental risk (credit and reputational risks), while agriculture was perceived to be the leading source of direct environmental risk (business risk). We found that perceptions of environmental sources of financial risk by mangers of locally owned banks differed from that of foreign owned banks. Growth of mining, trade and manufacturing positively influenced banking performance while the growth of construction and agriculture negatively influence banking stability. The study thus provides supportive evidence that commercial banks require set standards that guide clients’ business towards environmental sustainability

This study examined the mediating role of net interest margin (NIM) on the nexus between market structure and banks’ performance. Two ordinary least-squares models with a path analysis model were applied to analyze the data. The first regression model measured the indirect effects of market structure, total assets, geographic expansion, and specialization on ROA through NIM and revealed that the higher market share of loans positively effects on bank’s performance and statistically insignificant. Similarly, the geographic expansion was observed to hurt the bank’s ROA, but statistically insignificant. On the other hand, the indirect effect of total asset size and specialization was negative, but the first one was statistically significant, and the second was statistically insignificant. The result of the second regression model measured the direct effect of antecedent variables on the ROA and revealed that the market structure, geographic expansion, and specialization were negatively related to performance measure ROA. However, the direct effect of total assets size was positively related to ROA and statistically significant. The results of the two regression models based on total effects revealed that a higher bank size appeared favorable to Nepalese CBs and was found to have positive effects on ROA but the geographic expansion was a negative effect on ROA, and statistically significant. The results of the study might be helpful to Nepalese bankers, regularity authorities, and other concerned stakeholders to take an effective decision about the direct, indirect, and total effects of chosen antecedent variables on consequent variables through the mediating role of NIM.

The objective of this study is to examine the effect of bank lending on the growth of selected small and medium scale businesses in Nigeria. There are two basic research designs in social sciences, qualitative and quantitative orientation. However, the literature suggests a growing interest in a mixed approach (triangulation) following on from the argument that one is used to strengthen the other. Often, combining qualitative and quantitative methods, also known as the triangulation of methods, can capture a more holistic, complete, and contextual view of a phenomenon. The research is based on both qualitative and quantitative research designs.  Three research questions were addressed. Data were collected from a purposive sample of 200 respondents drawn from a population of 400 respondents. A research developed questionnaire was used for the data collection. Data were analyzed using simple percentages and tables. The result of the study revealed that Lending to SMEs encourages self-employment thereby reducing the rate of unemployment and crime in Nigeria. It also boosts industrialization as well as improving the economic situation in the Country. In conclusion, bank lending influence positively the level of economic activities and the growth of SMEs in the country. A number of recommendations were made based on the findings prominent among them is the need for Government, Commercial bank, and Central bank of Nigeria to increase lending to small and medium scale business with a view to create more jobs, reduce crime and unemployment as well as boost industrialization in Nigeria.

Abstract For risk and capital measurement, banks and other financial institutions need to meet forthcoming regulatory requirements. However, it is a serious issue to think that meeting regulatory requirements is the sole or even the most important reason for establishing a scientific, sound risk management system. To direct capital to activities with the best risk/reward ratios, managers need reliable risk measures. To stay within the limits imposed by readily available liquidity, by creditors, customers, and regulators, they need estimates of the size of potential losses. They need mechanisms to monitor positions and create incentives for prudent risk-taking by divisions and individuals. Risk measurement deals with the quantification of risk exposures, whereas risk management refers to the overall process by which managers satisfy these needs and follows to define a business strategy, to detect the risks to which are visible, quantifying those risks, and to control and understand the nature of the risks it faces. This research focuses on the economic vulnerability faced by banks in the financial sector in terms of the crises issues perspective of economic distress. Here, the methodology followed is based on the CAMELS framework variables. CAMELS is an abbreviation for: capital adequacy (C), asset (A), management (M), earnings (E), liquidity (L) and sensitivity to market risk (S). Based on these terminologies, a couple of variables should be selected, such as capital asset ratio, non-performing loan, cost income ratio, industry production index, non-interest income, reserve of gold, inflation, stock turnover ratio, real interest rate as component series and return on equity (RoE) as reference series to identify the turning points of economic vulnerability in the banking sector in Bangladesh. Thus, by forecasting the directional changes it could make policymakers aware of changes in the financial markets and banking economy and allow them to undertake preventive steps for remedial purposes. The constructed MPI should have a remarkable lead time of about not less than 6 months on average in case of prediction against the leading for reference Series.By mending the financial efficacy of investment banks. Bangladesh also should improve their corresponding banking system to implement these suggestions.  

This research examined the impact of Basel III capital regulation (BCR) on credit risk (CR) using a sample of 25 commercial banks in Lebanon over the period 2012–2017. BCR is measured using the capital adequacy ratio (CAR) and the common equity tier one ratio (CET1 ratio), CR is measured using net provision for credit losses /total assets. To analyze the data, we constructed a hybrid model based on 3 statistical approaches. First, we modelled the dual impact of BCR and CR using probabilistic inference in the framework of Bayesian Belief Network formalism (BBN). Second, to highlight more about the correlation between BCR and CR, we used Spearman correlation test as a nonparametric approach. Third to study the simultaneous effect of CAR and CET1 ratio on CR we applied multivariate regression analysis. By analyzing the probabilistic inference for the first approach we concluded that there is an effect of BCR on CR especially for the high level of CET1 ratio, but when we investigated more if this effect is significant using the Spearman correlation test and the multivariate regression analysis, we concluded that there is no effect statistically significant of Basel III capital regulation (BCR) on credit risk (CR).