This paper examines the relationship of banks’ capital buffers, risk and efficiency adjustments with cyclical movements. Empirically, we have used dynamic panel data from 461 banks of the BRICS countries (i.e., Brazil, Russia, India, China, and South Africa) for the period 2007–2015 and we also have empirically included Stochastic Frontier Analysis (SFA) to measure the efficiency. In contrast to the consequence of past investigations, this examination additionally affirms the noteworthy effect of macroeconomic fluctuations on the determination of capital buffers, risk and efficiency. The key results of five big emerging countries are as follows: (1) capital buffers of Russia, India, China, and South Africa behave counter-cyclically while it is pro-cyclical for Brazilian banks over the business cycle; (2) there is an anti-cyclical (pro-cyclical) and significant relation between risk (stability) and business cycle for four countries and no significant relation for South Africa; (3) it shows pro-cyclicality of bank’s efficiency except for South African banks; and (4) notably, the adjustment speed of capital buffers is higher for Chinese and Indian banks than Brazilian, Russian and South African banks. Finally, it provides some policy implications for the emerging economies regarding capital buffers, risk, and efficiency adjustment decisions.

Banks’ capital buffers, risk, and efficiency in emerging economies: are they counter-cyclical?

This article applies the generalized method of moments (GMM) to examine the relationship between capital buffer, risk and efficiency adjustments over the macroeconomic cycles. Using a panel dataset...

https://journals.sagepub.com/doi/pdf/10.1177/0972150918817382

The Impact of Business Cycle on Banks’ Capital Buffer, Risk and Efficiency: A Dynamic GMM Approach from a Developing Economy:

This study analyses the determinants of Rural and Community Banks (RCBs) liquidity performance in Ghana using the CAMEL regulatory measures and macroeconomic variables with RCBs’ market jurisdiction as a moderating variable. 114 rural and community bank-specific panel data from 2005 – 2013 and the panel least square fixed effect method estimation were used for the research. The result suggests that capital adequacy, asset quality, management efficiency and gross domestic product have significant positive relationship and effect on liquidity. It finds evidence to establish that profitability and management efficiency studied within a period reveal contradictory outcomes on banks’ liquidity performance. It also supports studies on performance of banks which show that macroeconomic variables on their performance have mixed outcomes. Further, it indicates that, whenever an investment is not done carefully it has a negative effect on RCBs’ liquidity performance. Also, market jurisdiction of rural and community banks has a significant effect on their liquidity performance. Original Research Article Boadi et al.; BJEMT, 12(3): 1-15, 2016; Article no.BJEMT.24121 2

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Determinants of Liquidity of Rural and Community Banks in Ghana

This study develops and estimates a dynamic panel model to examine the simultaneous relationship between capital regulations and bank risk-taking in the Bangladeshi banking sector. Furthermore, the study investigates the impact of capital regulations and bank risk-taking on performance. The study investigates on 30 commercial banks of Bangladesh over the period 2002-2016 using two-step system GMM estimator. The study also uses two-stage least squares regression to check the robustness of the findings. The empirical evidence is found showing the significant negative association between capital regulations and risk-taking simultaneously. The study also finds evidence that there is a significant positive impact of capital regulations on bank performance. In contrast, the findings show that bank risk-taking has significant negative impacts on performance. The study expects that the results of this study will add value to the existing literature and will be significant for the future researcher and policymaker to decide in this regard.

https://archive.aessweb.com/index.php/5002/article/download/1728/2583

Do Capital Regulations and Risk-Taking Behavior Affect Bank Performance? Evidence from Bangladesh

The purpose of this paper is to study the evolution of financial contagion between Eurozone banks, observing the credit default swaps (CDSs) market during the period 2009–2017.,The authors use a dynamic spatial Durbin model that enables to explore the direct and indirect effects over the short and long run and the transmission channels of the contagion.,The results show how contagion emerges through physical and financial market links between banks. This finding implies that a bank can fail because people expect other related financial institutions to fail as well (self-fulfilling crisis). The study provides statistically significant evidence of the presence of credit risk spillovers in CDS markets. The findings show that equity market dynamics of “neighbouring” banks are important factors in risk transmission.,The research provides a new contribution to the analysis of EZ banking risk contagion, studying CDS spread determinants both under a temporal and spatial dimension. Considering the cross-dependence of credit spreads, the study allowed to verify the non-linearity between the probability of default of a debtor and the observed credit spreads (credit spread puzzle). The authors provide information on the transmission mechanism of contagion and, on the effects among the largest banks. In fact, through the study of short- and long-term impacts, direct and indirect, the paper classify banks of systemic importance according to their effect on the financial system.

/pdf/bad-or-good-neighbours-a-spatial-financial-contagion-study-52n6muwd24.pdf

Bad or good neighbours: a spatial financial contagion study

The aim of this paper is to evaluate the way in which capital influences profitability of banks and exposure to risk in seven European countries: Austria, Bulgaria, Greece, Italy, Romania, the Netherlands and Hungary. Based on previous studies, we developed a model of simultaneous equations to analyse the relation between capital, risk and performance. The model includes 68 banks and covers the period between 2006 and 2011. In addition, estimations have been made for the three capital ratios (own capital ratio, tier 1 ratio and capital adequacy ratio) for each country included in this study. The obtained results have revealed the existence of a negative relationship between capital and taken risks and a positive relationship between capital and profitability, as well as between risk and profitability.

Bank Capital, Risk and Performance in European Banking: A Case Study on Seven Banking Sectors

Romanian banking system recorded a negative rate of return in recent years Therefore, this study focuses on identifying the main factors which contributed to decline of profitability in Romanian banks in the last years so that possible weaknesses and vulnerabilities to be corrected and removed For this purpose we first did a review of the literature on bank performance studies and classification of profitability determinants followed by an empirical study The empirical study was applied on 16 romanian banks for the period 2006 – 2012 and take into account bank-specific factors, industry-specific factor and macroeconomic factors The estimation results suggest that profitability of Romanian banks, measured by return on average assets, is strongly influenced by the capital adequacy, the ratio of non-performing loans, deposit and cost-to-income ratio Regarding industry-specific factor and macroeconomic factors the results are as we expected but without a statistically significant relationship

Factorii determinanți ai profitabilității sistemului bancar românesc

The financial crisis has highlighted the importance of liquidity risk for the banking system. Therefore, this study focuses on identifing the determinants of liquidity of Romanian banks. The data cover the period from 2006 to 2013 and take into account only bank-specific factors. The empirical study was applied on 16 Romanian banks and based on previous studies and uses different liquidity ratios, encompassing different points of view on liquidity. Regarding the explanatory variables considered in this analysis, they include various items of internal character concerning: capital adequacy, asset quality, profitability, efficiency of financial intermediation and the size of the banks. The results of our regression analysis indicate that bank liquidity is positively related to capital adequacy of banks and bank profitability and negatively related to the rate of non-performing loans, net interest margin and the size of the bank.

Irina Raluca Busuioc Witowschi

Papers

Bank Capital, Risk and Performance in European Banking: A Case Study on Seven Banking Sectors

Factorii determinanți ai profitabilității sistemului bancar românesc

Assesing The Determinants Of Bank Liquidity. Case Study Romanian Banking System