Macro Determinants Of Car In Indian Banking Sector
01 Jan 2017-Journal of Developing Areas (Tennessee State University College of Business)-Vol. 51, Iss: 2, pp 59-70
TL;DR: In this article, the authors investigate and evaluate the impact of macroeconomic indicators on CAR for Indian banks and suggest that the policy prescriptions that focus on the bank-specific determinants of CAR should also appropriately account for the influence of macro-economic indicators.
Abstract: Banks as a channel of monetary policy transmission play a very important role in facilitating the process of credit creation in an economy. It is crucial for financial stability that banks stay financially healthy. Capital Adequacy Ratio (CAR) is an important indicator of banks financial health. By nature the banking-operations and performance are subject to business cycles and fluctuations in economic activity. The global financial crisis saw the failure of financial sector giants like Lehman Brothers and banks in the U.S.A and other countries. The spread of global financial crisis worldwide attracted the interest of academicians and policy makers in banking sector and its soundness. Thus, after the financial crisis of 2008 the research on banking sector particularly CAR has gained lot of attention worldwide. Our review of extant literature highlights scanty evidence of papers examining the influence of macro-economic indicators in influencing changes in CAR of banks. We believe macro-economic variables may have a significant impact on CAR of banks as financial soundness in banks also to a large extent depends on the external factors and the state of macro-economy. Hence, this paper attempts to investigate and evaluate the impact of macroeconomic indicators on CAR for Indian banks. The study uses dynamic panel data analysis on 65 Indian commercial banks from 2007 to 2013. The findings of the study based on Generalized Method of Moments reveals that Real GDP Growth, Inflation rate, Interest rate and Exchange rate have strong impact on CAR of Indian Banks. The findings of the study suggest that the policy prescriptions that focus on the bank-specific determinants of CAR should also appropriately account for the influence of macro-economic indicators. Policy makers and regulators like Reserve Bank of India should take into consideration the effect of macroeconomic variables on CAR while framing policies on CAR and monitoring banks.
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TL;DR: In this paper, the impact of bank-specific determinants on the profitability of Indian public sector banks was empirically examined by using a fixed effect regression model by devising statistical software STATA to demonstrate non-uniform effects of selected financial characteristics on banks' profitability.
Abstract: The aim of present study is to empirically examine the impact of bank-specific determinants on the profitability of Indian public sector banks. A balanced panel data set comprising 280 observations of 28 Indian public sector banks over the period of ten years from 2006-07 to 2015-16 is used. The relevant financial data are collected from the Capitaline database. Net profit to Total funds is used as proxy for profitability of banks. A fixed effect regression model is built by devising statistical software STATA. The empirical results demonstrate non-uniform effects of selected financial characteristics on banks’ profitability. The results also reveal that deposit ratios are the significant determinants of banks’ profitability while Other Income to Total Income and Interest Income to Total Funds results a significant negative influence on bank performance. The results provide valuable insights to the banks that may assist in sustaining the financial stability in banking sector.
3 citations
Cites background from "Macro Determinants Of Car In Indian..."
...org 406 regulations, the Indian baking sector survived the aftermath of global financial crisis 2008 with no case of bankruptcy and this crisis led to regenerate the research thoughts on the profitability and capital adequacy ratio of banking sector (Pant and Nidugala, 2017)....
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...Said and Tumin (2011) investigate empirically and observed a negative relation between operating expenses and profitability of banks....
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...…406 regulations, the Indian baking sector survived the aftermath of global financial crisis 2008 with no case of bankruptcy and this crisis led to regenerate the research thoughts on the profitability and capital adequacy ratio of banking sector (Pant and Nidugala, 2017)....
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...Said and Tumin (2011) investigate empirically and observed a negative relation between operating expenses and profitability of banks. Nwezi (2009) opined a positive relationship of bank size and its profitability level as large bank size helps in attaining economies of scale, reduction in cost and increase in synergy....
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TL;DR: In this article , açıklayıcı faktör analizi ve yapısal eşitlik modeli kapsamında değerlendirilmiştir.
Abstract: Son yıllarda ikinci el otomobil piyasasında meydana gelen sert fiyat artışları, bir yandan bireylerin alım gücünü diğer yandan da piyasayı olumsuz etkilemektedir. Bu çalışma, ikinci el otomobil piyasasında fiyat artışına neden olan faktörlerin tespit edilmesini amaçlamaktadır. Bu doğrultuda Van ilinde faaliyet gösteren yetkili satıcı ve galericiler, anakütle olarak seçilmiş ve 226 kişiden oluşan örneklem kümesine anket uygulanmıştır. Anketlerden elde edilen veriler, başlıca açıklayıcı faktör analizi ve yapısal eşitlik modeli kapsamında değerlendirilmiştir. Çalışmada, ekonomi, strateji, pazar ve tedarik olmak üzere dört faktör tespit edilmiş ve bu faktörler, çalışmanın modeli ve hipotezleri bağlamında test edilmiştir. Sonuç olarak ikinci el otomobil fiyat artışına, ekonomi, strateji ve pazar gizil değişkenlerin oldukça güçlü ve pozitif yönde bir etkiye sahip olduğu bulgusuna ulaşılmıştır. Ayrıca tedarik gizil değişkenin de ikinci el otomobil fiyat artışına yüksek düzeyde bir ilişkisi olmasa da önemli bir düzeyde pozitif etkiye sahip olduğu sonucuna ulaşılmıştır.
08 Dec 2020
TL;DR: In this article, the authors examined the determinants of car sales in ASEAN countries and found that the previous period for inflation, gross domestic product per capita, interest rate, and the foreign exchange rate significantly influenced car sales.
Abstract: This research examines the determinants of car sales in ASEAN countries. The research concentrates on five macroeconomic variables (consumer price index, gross domestic product (GDP) per capita, changes in gross domestic product per capita, foreign exchange rate, and interest rate). The total sample is 12 years of automobile sales in five ASEAN countries from 2005 – 2016. The five ASEAN countries are Indonesia, Thailand, Malaysia, Singapore, and Vietnam. This paper used the multilinear regression method with Statistical Package for the Social Sciences (SPSS) software to test the research model. For interest-rate variables, we used a lag of one year. The empirical results show that the previous period for inflation, gross domestic product per capita, interest rate, and the foreign exchange rate significantly influenced on car sales in five ASEAN countries. The growth of GDP per capita does not influence car sales.
References
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TL;DR: In this article, the generalized method of moments (GMM) estimator optimally exploits all the linear moment restrictions that follow from the assumption of no serial correlation in the errors, in an equation which contains individual effects, lagged dependent variables and no strictly exogenous variables.
Abstract: This paper presents specification tests that are applicable after estimating a dynamic model from panel data by the generalized method of moments (GMM), and studies the practical performance of these procedures using both generated and real data. Our GMM estimator optimally exploits all the linear moment restrictions that follow from the assumption of no serial correlation in the errors, in an equation which contains individual effects, lagged dependent variables and no strictly exogenous variables. We propose a test of serial correlation based on the GMM residuals and compare this with Sargan tests of over-identifying restrictions and Hausman specification tests.
26,580 citations
"Macro Determinants Of Car In Indian..." refers methods in this paper
...Therefore, considering the nature of variables in our study we used GMM popularized by Arellano and Bond (1991), and Blundell and Bond (1998) for dynamic panel data analysis....
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TL;DR: In this paper, two alternative linear estimators that are designed to improve the properties of the standard first-differenced GMM estimator are presented. But both estimators require restrictions on the initial conditions process.
19,132 citations
TL;DR: In this article, the authors argue that negative shocks to aggregate demand reduce the ability of firms to service their debts to banks, and this reduction in debt service lowers bank equity, and, because of capital adequacy requirements, this in turn reduces bank lending and industry investment.
319 citations
"Macro Determinants Of Car In Indian..." refers background in this paper
...Blum & Hellwig (1995) examined the relationship between banks CAR and macroeconomic indicators....
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Posted Content•
TL;DR: In this article, the authors test for emerging economies the hypothesis - previously verified for G-10 countries only - that the enforcement of bank capital asset requirements (CARs) exerts a detrimental effect on the supply of credit.
Abstract: We test for emerging economies the hypothesis - previously verified for G-10 countries only - that the enforcement of bank capital asset requirements (CARs) exerts a detrimental effect on the supply of credit. The econometric analysis on individual bank data suggests three main results. First, CAR enforcement - according to the 1988 Basel standard - significantly curtailed credit supply, particularly at less-well capitalized banks. Second, such negative impact was larger for countries enforcing CARs in the aftermath of a currency/financial crisis. Third, the adverse impact of CARs on the credit supply was significantly smaller for foreign-owned banks, suggesting that opening up to foreign investors may be an effective way to partly shield the domestic banking sector from negative shocks. Overall, CAR enforcement - by inducing banks to reduce their lending - may well have induced an aggregate credit slowdown or contraction in the examined emerging countries. This paper is relevant to the ongoing debate on the impact of the revision of bank CARs, as contemplated by the 1999 Basel proposal. Our results suggest that in several emerging economies the revision of bank CARs could well induce a credit supply retrenchment, which should not be underestimated.
163 citations
TL;DR: In this article, an optimal monetary policy rule was derived in both a static and a dynamic model where the potential procyclicality of capital requirements was embedded, and the simulation results showed that while monetary policymakers in the United States behave as the theory suggests, lowering interest rates by more in downturns in which the banking system is under stress, by contrast, central bankers in Germany and Japan do not.
Abstract: I. INTRODUCTION Central bankers know that financial intermediation is important for achieving macroeconomic stability. Without a functioning banking system, an economy will grind to a halt. It is the job of regulators and supervisors to ensure that the financial system functions smoothly. But monetary policy and prudential supervisory policy can work at cross-purposes. An economic slowdown can cause deterioration in the balance sheets of financial institutions. Seeing the decline in the value of assets, supervisors will insist that banks should follow the regulation and ensure that they have sufficient capital given their risk exposures. The limit on bank lending set by capital adequacy requirements declines during recessions and increases during booms. And as intermediation falls, the level of economic activity goes down with it. It looks as if regulation deepens recessions. As the Basel Committee on Banking Supervision (2001) put, the capital regulation "has the potential to amplify business cycles." Blum and Hellwig (1995) provided the first theoretical demonstration that capital requirements can exacerbate business cycle fluctuations. In focusing entirely on the behavior of the banking system, the Blum and Hellwig model provides an important first step, but in the end, their analysis is incomplete. They do not consider the response of the central bank to economic fluctuations. This assumption is critical for their result but certainly unrealistic. What if central banks conduct monetary policy to explicitly account for the impact of capital requirements? (1) Will the procyclical effect of capital requirements remain? Is this the optimal thing to do for central banks? To answer these questions, we derive an optimal monetary policy rule in both a static and a dynamic model where the potential procyclicality of capital requirements is embedded. Our conclusions are as follows: a country's monetary policymakers should react to the state of their banking system's balance sheet. And when they do, the procyclical effect of prudential capital regulation can be counteracted and completely neutralized. For a given level of economic activity and inflation, the optimal policy reaction dictates setting interest rates lower, the more financial stress there is in the banking system when the economic activity is in the downturn. We present simulation results to give a sense of the magnitude of the required reaction. But when taking this proposition to the data and estimating forward-looking monetary policy reaction functions for the United States, Germany (preunification), and Japan, we find that while monetary policymakers in the United States behave as the theory suggests, lowering interest rates by more in downturns in which the banking system is under stress, by contrast, central bankers in Germany and Japan do not. We derive optimal interest rate rules with the static model and the dynamic model in Sections II and III, respectively. Section IV reports the simulation results, and Section V discusses the empirical estimation. Section VI concludes. II. A STATIC MODEL A. The Model We begin with a static aggregate demand-aggregate supply model modified to include a banking sector. The purpose of this simple model is to highlight the impact of introducing bank capital requirements in their most stripped-down form in order to show the extent to which the banking industry can affect business cycles. The static model also sheds lights on the fruitful approach that solves the dynamic model. The starting point is an aggregate demand curve that admits the possibility of banks having an impact on the level of economic activity. Following Bernanke and Blinder (1988), we distinguish between policy-controlled interest rate and lending rates and write aggregate demand as: (1) [y.sup.d] = [y.sup.d](i - [[pi].sup.e], [rho] - [[phi].sup.e], [phi]) + [eta], where i is the short-term nominal interest rate, [rho] is the nominal loan rate, [[pi]. …
146 citations
"Macro Determinants Of Car In Indian..." refers background in this paper
...On the other hand a decrease in the interest rate may increase the lending capacity of the banks that may prefer to hold tighter CAR because of the increased risk of lending (Cecchetti & Li, 2008)....
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