https://link.springer.com/content/pdf/10.2307%2F3343168.pdf

Development as Freedom

What is wrong with today's banking system? The past few years have shown that risks in banking can impose significant costs on the economy. Many claim, however, that a safer banking system would require sacrificing lending and economic growth. The Bankers' New Clothes examines this claim and the narratives used by bankers, politicians, and regulators to rationalize the lack of reform, exposing them as invalid. Admati and Hellwig argue we can have a safer and healthier banking system without sacrificing any of the benefits of the system, and at essentially no cost to society. They show that banks are as fragile as they are not because they must be, but because they want to be--and they get away with it. Whereas this situation benefits bankers, it distorts the economy and exposes the public to unnecessary risks. Weak regulation and ineffective enforcement allowed the buildup of risks that ushered in the financial crisis of 2007-2009. Much can be done to create a better system and prevent crises. Yet the lessons from the crisis have not been learned. Admati and Hellwig seek to engage the broader public in the debate by cutting through the jargon of banking, clearing the fog of confusion, and presenting the issues in simple and accessible terms. The Bankers' New Clothes calls for ambitious reform and outlines specific and highly beneficial steps that can be taken immediately.

The Bankers' New Clothes: What's Wrong with Banking and What to Do about It

The purpose of this study is to investigate the determinants of Turkish banks' capital adequacy ratio and its effects on financial positions of banks covered by the study. Data are obtained from banks' annual reports for the period 2006 - 2010. Panel data methodology is used in this study and analyzes relationships between independent variables; bank size (SIZE), deposits (DEP), loans (LOA), loan loss reserve (LLR), liquidity (LIQ), profitability (ROA and ROE), net interest margin (NIM) and leverage (LEV) and a dependent variable which is capital adequacy ratio (CAR). The results of the paper indicate that LOA, return on equity and LEV have a negative effect on CAR, while LLR and return on assets positively influence CAR. On the other hand, SIZE, DEP, LIQ and NIM do not appear to have any significant effect on CAR.

	 

	Key words: Capital adequacy ratio, Turkish banks, panel data analysis.

Determinants of capital adequacy ratio in Turkish Banks: A panel data analysis

This study assesses the risk-related reporting practices of 190 Portuguese credit institutions based on a content analysis of their individual annual reports for 2006. Risk-related disclosures are found to lack comparability because of different maturity time bands that report exposures to credit, market and liquidity risks; different Value-at-Risk and sensitivity analysis assumptions; and different practices for reporting capital structure and adequacy. The misalignment of quantitatively based disclosures and related narratives led to problems of relevance, reliability and understandability. We assess the extent to which reforms of risk-related reporting practices in 2007 in International Financial Reporting Standards and the Basel II Accord address each of the deficiencies identified. We highlight areas needing further reform, and recommend that Portuguese supervisory authorities adopt more effective enforcement mechanisms to broker compliance with minimum mandatory risk disclosure requirements.

/pdf/risk-related-disclosure-practices-in-the-annual-reports-of-2sc7w1u3ge.pdf

Risk-related disclosure practices in the annual reports of Portuguese credit institutions: An exploratory study

One of essential requirements for banks and financial institutions is adequate and sufficient capital and every banks and financial organizations must keep balance between capital and available risk in its assets in order to guarantee its stability. Thus it has become one of the most important criteria for depository institutions. This study focuses on influential factors (precisely seven financial factors) over capital adequacy in Iranian private banks for the period 2006–2012. The results obtained indicate negative relationship between bank size and capital adequacy ratio of banks and positive relationship between Loan Asset Ratio (LAR), Return on Equity (ROE), and Return on Asset (ROA), Equity Ratio (EQR), and capital adequacy ratio. RAR and DAR do not have any impact on capital adequacy ratio.

/pdf/the-influential-factors-on-capital-adequacy-ratio-in-iranian-40v6gbr4dy.pdf

The Influential Factors on Capital Adequacy Ratio in Iranian Banks

This article tests four regression models using the available data of Nigerian quoted small and medium-sized enterprises (SMEs) between 1999-2003. It is conceptualised that sustained growth, adequate liquidity and requisite profitability in the SME sector is significantly related to their investment and financing decisions. The empirical results show a significantly inverse relationship between current ratio and the gross profit margin, holding the working capital gap constant. This portrays a 'financial management dilemma' as the Chief Finance Officer (CFO) endeavours to synchronise the conflicting objectives of liquidity and profitability. It is also shown that neither the total assets turnover nor the fixed assets turnover ratios is significant in determining the gross profit margin in Nigerian quoted SMEs. Moreover, a 1 per cent increase in the current ratio brings about a more than proportionate decrease in the debt-equity ratio and the debt-assets ratio. The quoted SMEs' current asset ratios are significantly sensitive to commercial banks' liquidity ratio, cash reserve requirements, and the loan-to-deposit ratio. Overall, our model results confirm that the SME sector in Nigeria is still limited by the liquidity-profitability dilemma, efficiency constraints, pecking order reversals, stringent monetary policy regimes and a risk-averse banking system.

Financial Management Modelling of the Performance of Nigerian Quoted Small and Medium-Sized Enterprises

This study tests four regression models to examine the effects of selected bank management ratios on rural lending and small business finance in Nigeria. Published data were generated from the Central Bank of Nigeria (CBN) Statistical Bulletin for the period 1992-2007, and analyzed with the Software Package for Social Sciences (SPSS). It was found that a critical gap in bank intermediation still exists in the Nigerian rural and SME sectors. A significantly positive relationship exists between rural loan-todeposit ratio (RLTDR) and aggregate loan-to-deposit ratio (LTDR) at the 5% level. However, when RLTDR is used as the explanatory variable, we should expect LTDR to rise significantly, as RLTDR declines and vice versa. The coefficient of determination (R2) shows that 84.02% of the variation in RLTDR is accounted for by bank management variables (Liquidity Ratio - LR, Cash Reserve Ratio â€“ CRR and Loan-to- Deposit Ratio LTDR). Furthermore, the bank management variables (LR, CRR and LTDR) varied negatively with the ratio of loans to SMEs (RLSMEs) at the 5% level of significance. Nearly 75% of the variations in the ratio of loans to SMEs is accounted for by the bank management explanatory variables. Overall, the results suggest that rural bank management expanded aggregate credit in such a manner that constrained their liquidity profiles, particularly from year 2007. The excess liquidity in the banking system between 1992-2007 did not improve the flow of credit to SMEs in Nigeria. Consequently, the banks have failed in their social role of financing the entrepreneur-innovator by restricting the spread of fiat money contrary to the expectations of the Keynes-Schumpeter model. There is also no evidence to show that the banks are dealing significantly with the problem of information asymmetries through improved relationship lending to the SMEs in Nigeria. Monetary policy should therefore focus on compliance with prudential standards, restoring the mandatory credit allocation

/pdf/modelling-bank-management-rural-lending-and-small-business-adgn5n8xvf.pdf

Modelling bank management, rural lending and small business finance in nigeria

This study investigates the liquidity management practices of selected Nigerian banks by evaluating 1) the relevance of treasury objectives in bank portfolio management, 2) causes of asset-liability mismatch in banks, 3) causes of liquidity crisis, 4) incidence of treasury risk, 5) adequacy or appropriateness of liquidity risk management techniques, 6) liquidity planning practices of Nigerian banks, and 7) extent of liquidity exposure in banks. The rampant reported cases of liquidity crisis and financial distress in the Nigerian banking industry have necessitated a study on how to manage the bank's liquidity exposure. To achieve these objectives, eighty copies of semi-structured questionnaire were administered on bankers charged with liquidity and risk management. With a response rate of 57.5 percent complemented by an analysis of the liquidity ratios of the selected banks, we found among others that most banks fall somewhere between purchased liquidity and stored liquidity strategies in managing their liquidity risk. However, their liquidity plans do not always detail a sequencing of assets for disposal in anticipation of various degrees or intensities of deposit/fund withdrawals. To survive the turbulence that follows the emerging reforms in the banking industry, bankers need contingence liquidity plans for their contingency liquidity needs. Otherwise sudden unexpected surge in net deposit withdrawals risks triggering a possible bank run which could eventually force a bank into insolvency.

Empirical Study of the Liquidity Management Practices of Nigerian Banks

The purpose of this research is two-fold. First, the study was intended to determine the effects of bank liquidity management practices (monetary policy outcomes) on industry asset quality, measured with the proportion non-performing loans (npls) in the loans portfolio. Second, we also investigated the effects of capital adequacy regulation on selected bank asset quality and efficiency measures. Relevant data were generated from the Central Bank of Nigeria (C.B.N.) and Nigeria Deposit Insurance Corporation (N.D.I.C.) official sources, including the balance sheets of selected Nigerian quoted banks. With the estimation of eight multiple regression equations, we found that the use of the minimum liquidity ratio (MLR) is irrelevant in controlling industry npls. The objective of controlling banking sector liquidity in the Nigerian industry with the MLR may rather increase industry npls and culminate in high risk concentrations. The cash reserve ratio (CRR) is a more effective tool in controlling the level of npls in the industry as a whole and the distressed banks in particular. As the ratio of equity to loans advances increases, we should expect the classified loans ratio to decrease and asset quality to rise, and vice versa. Under regimes of rising equity-to-total-assets (ETA) ratio, we should expect the loan loss reserves ratio to fall, and vice versa.

Monetary Policy, Capital Adequacy Regulation and Banking System Soundness in Nigeria: Empirical Research Findings

IntroductionThe field of corporate financial management has developed very extensively since the early 1950s. Sophisticated quantitative models have been developed and applied to the analysis of the interactions among investment, financing and dividend policy decisions within a shareholders' wealth maximisation framework. The propositions outlined under The Separation Theorem, which was first identified by Irving Fisher1 in the 1930s and formally set out by Hirshleifer2 have been severally tested with data mainly from large enterprises. The crux of The Separation Theorem is that investment, financing and dividend policy decisions are irrelevant in determining enterprise value. The effects of taxation, inflation and financial market dynamics on these financial decisions have also been investigated and reported extensively. Recently, the cherished "random walk" view that stock returns are unpredictable, the "CAPM" view that the market is the only benchmark and market exposure the only source of returns, and the "expectations hypothesis" relating interest rates of various maturities and countries have all been abandoned3.The applications of the various financial management models to the small business sector have been limited, particularly in developing economies. The persistent lack of relevant data on small enterprises is still an issue to be addressed by policy makers and the Federal Office of Statistics (FOS). However, there are a few studies that have investigated working capital management practices, financial reporting systems, and capital structure in small and medium-sized enterprises (SMEs) in U.S.A., U.K. and North America. The works of Reid4 show how in theory and practice the key variables which characterise the small firm's financial structure evolve over several time periods after inception. Reid provides a dynamic theory of the small firm which supports the cheap equity case, except when interest rates are low. Brounen, et al5 find that while large firms frequently use present value techniques and the capital asset pricing model when assessing the financial feasibility of an investment opportunity, Chief Finance Officers ( CFOs) of small firms still rely on the payback criterion.PreludeSince the Bolton Report in 19716, there have been a number of other surveys and studies of the growth constraints experienced by smaller firms (for example, Soufani, 2002, ACOST 1990, Aston Business School7, Cambridge Small Business Research Centre (CSBRC)8 1992). The CSBRC (1992) survey concluded that two important constraints for all firms relate to matters of finance. Due to diverse financial as well as non-financial and behavioural factors9 small businesses rely more heavily on short-term funding and this makes them more sensitive to macroeconomic changes10. Under such circumstances, businesses have to strive for more efficient working capital management and especially the management of accounts receivable and accounts payable, which make up the largest proportions of working capital needs in small firms. Peel and Wilson" indicate that if the financial /working capital management practices in the SME sector could be improved significantly, then fewer firms would fail and economic welfare would be increased substantially. Yet even though the importance of sound financial and working capital management is recognised, theoretical and empirical work on the area has been very minimal.The deregulation of the Nigerian financial services industry between 1986 and 1992 resulted to high interest rates, persisting liquidity crisis in the banking system and credit rationing in favour of large companies. The policy sommersaults that characterised the postderegulation period ( 1993-2005) left Nigerian SMEs under severe financial stress and extreme financing gaps. The adoption of a medium-term perspective monetary policy was characterised by a high minimum liquidity ratio (MLR) and increasing cash reserve requirement (CRR) between 9-12 per cent with the consequential credit crunch and high mortality rates among Nigerian SMEs. …

Adolphus J. Toby

Papers

Financial Management Modelling of the Performance of Nigerian Quoted Small and Medium-Sized Enterprises

Modelling bank management, rural lending and small business finance in nigeria

Empirical Study of the Liquidity Management Practices of Nigerian Banks

Monetary Policy, Capital Adequacy Regulation and Banking System Soundness in Nigeria: Empirical Research Findings

Financial Management Modelling of the Performance of Nigerian Quoted Small and Medium-Sized Enterprises