We investigate the association between bank market power and revenue diversification and whether revenue diversification interacts with market power impacting on individual bank stability. These issues are explored in the context of four South Asian banking markets (Bangladesh, India, Pakistan and Sri Lanka) during 1998-2008. Our Generalised Methods of Moments (GMM) estimators indicate that South Asian banks with greater market power focus more on traditional interest income generating activities. Such banks, however, become more stable when they diversify across both interest- and non-interest income activities.

Market Power, Revenue Diversification and Bank Stability: Evidence from Selected South Asian Countries

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 paper constructs a theoretical model to analyze the effect of macroprudential policies (MPPs) on bank risk-taking. We collect a data set of 231 commercial banks in China to empirically test whether macroprudential tools, including countercyclical capital buffers, reserve requirements, and caps on loan-to-value, can affect bank risk-taking behaviors by using the dynamic unbalanced panel system generalized method of moment (SYS-GMM). The results provide further evidence on the important role of MPPs in maintaining financial stability, which helps mitigate financial system vulnerabilities. Bank risk-taking will be decreased with the strengthening of macroprudential supervision, which greatly benefits the resilience and the sustainability of bank sector. Moreover, the credit cycle has a magnifying role on MPPs’ effect on bank risk-taking. Reducing risks in bank loans requires a further slowing of credit growth, which is necessary to ensure sustainable growth in a bank system, or more ambitiously, to smooth financial booms and busts. The results survive robustness checks under alternative estimation methods and alternative proxies of bank risk-taking and MPPs.

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Macroprudential Policy, Credit Cycle, and Bank Risk-Taking

On the income diversification and bank market power nexus in the MENA countries: Evidence from a GMM panel-VAR approach

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Crude Oil Price, Interest Rate and Unemployment Nexus in Nigeria: An Application of Toda and Yamamoto Long-Run Causality Procedure

This paper studies the nexus between market power and business models in the banking industry. Business models are represented by non-interest income and non-deposit short-term funding share. We also examine the impact of bank business models on banking stability and performance. Using a sample comprising six ASEAN country banking sectors from 2002 to 2015, we find that banks with a strong capital base but lower net interest margin perform better in translating their market power into generating non-traditional income as alternative sources of revenues. Our findings also show that the implementation of the Basel 2 Accord encourages banks to create non-interest income from trading and derivatives activities as well as from other non-interest income. We also document that banks with higher market power tend to increase non-deposit short-term funding in their financing mix. In the evaluation of banking stability, our results suggest that banks with greater non-traditional income are associated with less overall banking risk. Moreover, non-traditional incomes also contribute to better bank performance.

Empirical evidence on bank market power, business models, stability and performance in the emerging economies

Risk Mapping on Dynamics Creative Industry: Case Study at Bandung City, Indonesia

The Dynamics of Bank Business Models in the ASEAN Banking Sector

The purpose of this paper is to examine to what extent is the impact of Basel II adoption on bank business models in the emerging market of selected ASEAN member states.,To evaluate the impact of the Basel II regulation on banking business models, a difference-in-differences estimation approach is used. This study defines bank business models using diversification index of a modified Herfindahl–Hirschman Index.,The findings suggest that the Basel II framework only affects banks’ income diversification, while there is no evidence that it leads to funding and asset diversification. Under the Basel II accord, banks have adjusted their business models by diversifying their sources of income to avoid the obligation for keeping more capital; in contrast, a less developed financial market structure and a dependency on customer deposits are creating difficulties for banks in diversifying their funding and asset structure.,The banking sample are taken only from ASEAN countries.,The findings provide important implication on the regulatory perspective, which is the implementation of Basel II framework induces higher intensity for the use of non-interest income activities. Including in these activities are trading and derivatives. Accordingly, the financial authorities should take with care the use of trading and derivatives products in the banking industry which is already embedded in current Basel framework, the Basel III Accord.,The paper provides direct evidence on the impact of Basel II on bank business models in the emerging markets of ASEAN banking sectors.

The implication of banking regulation on bank business model: evidence from the ASEAN countries

The panel vector autoregression model is estimated using three main variables related to with profitability, financial liquidity, and financial leverage for 94 manufacturing companies from 2000 to 2017 in Indonesia. The aim is to examine the impact of oil price shocks on the ROA (profitability), CR (financial liquidity), and DER (financial leverage). The impulse reaction function of samples reveals some remarkable results. First, the response of ROA, DER, and CR appears to be consistent in many ways. Second, either Brent oil or WTI oil gives the same result for these variables. Third, financial liquidity for Indonesia manufacturing companies is not affected by the oil prices. The results obtained are robust following the GMM model in the estimation of the panel VAR.

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Oktofa Yudha Sudrajad

Papers

Empirical evidence on bank market power, business models, stability and performance in the emerging economies

Risk Mapping on Dynamics Creative Industry: Case Study at Bandung City, Indonesia

The Dynamics of Bank Business Models in the ASEAN Banking Sector

The implication of banking regulation on bank business model: evidence from the ASEAN countries

Do oil price shocks give impact on financial performance of manufacturing sectors in indonesia