scholarly journals Does credit risk persist in the Indian banking industry? Recent evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anju Goswami
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Banking Industry ◽  
Optimal Size ◽  
Content Type ◽  
Managerial Efficiency ◽  
Credit Quality ◽  
Indian Banks ◽  
Asset Quality

PurposeThis study aims to capture the “persistence effect” of credit risk in Indian banking industry using the bank-level data spanning over the period of 19 years from 1998/1999 to 2016/17. Alongside, the study explored how the bank-specific, industry-specific, macroeconomic variables alongside regulatory reforms, ownership changes and financial crisis affect the bank's asset quality in India.Design/methodology/approachUsing two-step system generalized method of moment (GMM) approach, the study derives key factors that affect the bank's asset quality in India.FindingsThe empirical results confirm the time persistence of credit risk among Indian banks during study period. This reflects that bank defaults are expected to increase in the current year, if it had increased past year due to time lag involved in the process of recovery of past dues. Further, higher profitability, better managerial efficiency, more diversified income from nontraditional activities, optimal size of banks, proper credit screening and monitoring and adherence regulatory norms would help in improving the credit quality of Indian banks.Practical implicationsThe practical implication drawn from the study is that nonaccumulation of nonperforming loans (NPLs), higher profitability, better managerial efficiency, more diversified income from nontraditional activities, optimal size of banks, proper credit screening and monitoring and adherence regulatory norms would help in improving the credit quality of Indian banks.Originality/valueThis study is probably the first one that identifies in addition to the current year, whether lag of bank industry-macroeconomic affects the level of NPLs of Indian banks. So far, such an analysis has received less attention with respect to Indian banking industry, especially immediate aftermath of the global financial crisis.

scholarly journals A primer on counterparty valuation adjustments in South Africa

2014 ◽  
Vol 17 (5) ◽  
pp. 584-600
Author(s):  
Gary Wayne Van Vuuren ◽  
Ja'nel Esterhuysen
Keyword(s):  
South Africa ◽  
Financial Crisis ◽  
Credit Risk ◽  
South African ◽  
Credit Spreads ◽  
Basel Iii ◽  
Credit Quality ◽  
Counterparty Credit Risk ◽  
Market Variables

Counterparty valuation adjustment (CVA) risk accounts for losses due to the deterioration in credit quality of derivative counterparties with large credit spreads. Of the losses attributed to counterparty credit risk incurred during the financial crisis of 2008-9 were due to CVA risk; the remaining third were due to actual defaults. Regulatory authorities have acknowledged and included this risk in the new Basel III rules. The capital implications of CVA risk in the South African milieu are explored, as well as the sensitivity of CVA risk components to market variables. Proposed methodologies for calculating changes in CVA are found to be unstable and unreliable at high average spread levels.

Impact of board size on the accounting returns and the asset quality of Indian banks

2020 ◽  
Vol 62 (4) ◽  
pp. 297-313
Author(s):  
Ankur Shukla ◽  
Sivasankaran Narayanasamy ◽  
Ramachandran Krishnakumar
Keyword(s):  
Robust Regression ◽  
Positive Impact ◽  
Ordinary Least Squares ◽  
The Body ◽  
Board Size ◽  
Content Type ◽  
Indian Banks ◽  
Asset Quality ◽  
The Impact

Purpose The purpose of the paper is to explore the impact of board size on the accounting returns and asset quality of Indian banks. Design/methodology/approach This paper uses ordinary least squares regression, robust regression and panel data methods for estimation, based on data collected for a sample of 29 Indian banks that are listed on the National Stock Exchange (NSE) and form part of the NSE-500 index over a period of eight financial years 2009-2016. The data pertaining to the board size of the sample banks is collected from the annual reports of banks, whereas the data relating to return on assets (ROA) and ratio of the gross non-performing assets to total assets and control variables (bank age and bank size) is extracted from ACE Equity database. Findings This paper concludes that the size of the governing board has a positive impact on the accounting returns (measured through ROA) of the Indian banks. Further, board size is observed to be insignificant in determining the asset quality of Indian banks. Originality/value This paper contributes to the literature and practitioners in a number of ways. First, to the best of the authors’ knowledge, this is the first study on the impact of board size on the accounting returns and asset quality of Indian banks. The findings of the study contribute new theoretical insights to the body of knowledge on the influence of the size of the board, which may be useful for future researchers. Second, banks may enhance their financial performance by taking cognizance of the findings of this study. Finally, equity investors may make use of the findings of this article in deciding on whether to invest in a bank’s stock/lend to the bank based on board size of the bank.

Economic slowdown, NPA crisis and productivity behavior of Indian banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anju Goswami ◽  
Rachita Gulati
Keyword(s):  
Production Process ◽  
Global Financial Crisis ◽  
Banking Industry ◽  
Economic Stress ◽  
Productivity Index ◽  
Undesirable Output ◽  
Content Type ◽  
Tfp Growth ◽  
Robust Estimates ◽  
Indian Banks

PurposeThis paper aims to investigate the productivity behavior of Indian banks in the presence of non-performing assets (NPAs) over the period 1999 to 2017. The study examines whether Indian banks withstand the shocks of the global financial crisis (GFC) of 2007–2009 and sustain their total factor productivity (TFP) levels in the post-crisis economic turbulent period or not.Design/methodology/approachThe robust estimates of TFP and its components: efficiency change and technical change are obtained using the state-of-the-art and innovative sequential Malmquist-Luenberger productivity index (SMLPI) approach. The key advantages of this approach are that it explicitly allows the joint production of undesirable output (NPAs in our case) along with desirable inputs and outputs in the production process and precludes the possibility of spurious technical regress.FindingsThe empirical results of the study reveal that the Indian banking system has experienced a (−1) percent TFP regress, contributed solely by efficiency loss during the period under investigation. The GFC has slowed down the growth trajectory of TFP growth in the Indian banking industry. Among ownership groups, the effect of the GFC was pronounced on the public sector banks.Practical implicationsThe practical implication drawn from the study is that the Indian banks have not been able to successfully transmit the use of installed technology in a way to generate early warning signals and mitigate the risk of defaults so as to maximize their productivity gains in the banking industry.Originality/valueThis study is perhaps the first one to understand the productivity dynamics of the Indian banks in response to both endogenous (i.e. NPA crisis) and exogenous (i.e. global financial and economic stress) crises. Moreover, the authors obtain the robust estimates of TFP growth of Indian banks by explicitly accounting for NPAs as an undesirable output and equity as a quasi-fixed input in the bank production process.

What drives credit risk of microfinance institutions? International evidence

2017 ◽  
Vol 13 (5) ◽  
pp. 541-559 ◽  
Author(s):  
Naima Lassoued
Keyword(s):  
Credit Risk ◽  
Institutional Environment ◽  
Microfinance Institutions ◽  
Group Lending ◽  
Content Type ◽  
Random Effects Models ◽  
Credit Quality ◽  
Country Level ◽  
Enforcement Cost ◽  
Practical Implications

Purpose The purpose of this paper is to shed light on the factors that affect microfinance institutions’ (MFI) credit risk. These factors include MFIs’ characteristics and country-level indicators. Design/methodology/approach This empirical study uses an unbalanced panel data of 638 MFIs from 87 countries observed over a period ranging from 2005 to 2015. Random-effects models are used to estimate the models. Findings The results reveal that group-lending methodology, percent of loan granted to women and diversification activities reduce credit risk; credit quality is enhanced by the relevance of the information published by public or private bureaus and law enforcement cost increases credit risk. Finally, credit risk tends to be limited in a good institutional environment. Practical implications Several implications can be drawn in light of these findings. For MFIs’ managers, using group lending or granting more credit to women and diversifying their activities enhance their credit quality. Furthermore, authorities need to strength debt repayment institutions and reinforce institutional environment to help MFIs to limit their credit risk. Originality/value Previous studies focus on specific MFIs’ practices that enhance repayment rate or on country-level indicators. One of the contributions of this paper is the use of both types of indicators.

The relationship between risk, capital and efficiency in Indian banking: Does ownership matter?

2019 ◽  
Vol 11 (2) ◽  
pp. 218-231
Author(s):  
Sanjukta Sarkar ◽  
Rudra Sensarma ◽  
Dipasha Sharma
Keyword(s):  
Public Sector ◽  
Credit Risk ◽  
Large Data ◽  
Foreign Banks ◽  
Risk Capital ◽  
Lower Efficiency ◽  
Data Set ◽  
Content Type ◽  
Balance Sheets ◽  
Indian Banks

Purpose This paper aims to examine the interplay between risk, capital and efficiency of Indian banks and study how their relationship differs across different ownership types. Design/methodology/approach Panel regression techniques are used to analyze a large data set of all Indian scheduled commercial banks operating during the period 2008-2016. Findings The results show that lower efficiency is associated with higher credit risk in the case of public sector and old private sector banks (”bad management hypothesis”). However, higher efficiency leads to higher credit risk in the case of foreign banks (“cost skimping hypothesis”). The authors further find that the more efficient institutions among public sector hold more capital. Finally, they find that the better-capitalized banks among those in the public sector have lower risks on their balance sheets (“moral hazard hypothesis”). Originality/value There is a paucity of papers on the interplay between risk, capital and efficiency of banks in emerging economies. This paper is the first to study the inter-relationship between risk, capital and efficiency of Indian banks across ownership groups using a number of different measures of risk.

Intellectual capital and asset quality in an emerging banking market

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nicholas Asare ◽  
Margaret Momo Laryea ◽  
Joseph Mensah Onumah ◽  
Michael Effah Asamoah
Keyword(s):  
Human Capital ◽  
Intellectual Capital ◽  
Value Added ◽  
Annual Data ◽  
Capital Investments ◽  
Content Type ◽  
Panel Regressions ◽  
Banking Market ◽  
Asset Quality

PurposeThis study examines the causal relationship between intellectual capital and asset quality of banks in Ghana.Design/methodology/approachUsing annual data extracted from audited financial statements of 24 banks from 2006 to 2015, a ratio of non-performing loans to gross loans and advances is employed to estimate asset quality growths while the value-added intellectual coefficient by Pulic (2008, 2004) measures intellectual capital. The panel-corrected standard errors estimation technique is used to estimate panel regressions with asset quality as the dependent variable.FindingsAsset quality of banks in Ghana is generally not affected by intellectual capital. However, when intellectual capital is divided into its components, the study indicates that there are significant positive relationships between asset quality and two components of intellectual capital. Thus, structural capital and human capital efficiencies positively affect the asset quality of banks.Practical implicationsThe findings of the study implore managements of banks to increase structural and human capital investments and efficiencies to improve asset quality. Furthermore, the results have direct implications on developments in financial markets in emerging economies.Originality/valueThe study analyses the link between typical intellectual capital and asset quality of banks which is yet to be empirically examined in an emerging banking market.

Credit risk management of Ghanaian listed banks

2016 ◽  
Vol 58 (2) ◽  
pp. 162-178 ◽  
Author(s):  
Michelle Ayog-Nying Apanga ◽  
Kingsley Opoku Appiah ◽  
Joseph Arthur
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Banking Sector ◽  
Banking Industry ◽  
Credit Risk Management ◽  
Structured Interviews ◽  
Content Type ◽  
Credit Risks ◽  
Commercial Loans

Purpose – The study aims to assess credit risk management practices within financial institutions in Ghana. Specifically, the study compares credit risk management practices of listed banks in Ghana with Basel II (1999). Design/methodology/approach – The analysis is based on data gathered from varied sources, namely, use of questionnaires, analysis of internal credit policies and procedure manuals and semi-structured interviews and discussions with credit risk managers of the selected banks in May 2007 and October 2014. Findings – Overall, the credit risk management practices within listed banks in Ghana are in line with sound practices. The only dissimilarity, however, is the role of the board of directors in defining acceptable types of loans and maximum maturities for the various types of loans. The listed banks in Ghana are also exposed to credit risks associated with granting both corporate and small business commercial loans and the use of collaterals to mitigate their credit risk exposures. Practical implications – Banks in Ghana should consider developing the skills of all their personnel and appropriately motivating those involved in the credit risk management processes to ensure that they carry out this process efficiently. Originality/value – Research into credit risk management in the banking industry from the Ghanaian perspective remains scant. This study is, therefore, timely, and its findings are invaluable for the efficient management of credit risk in the banking industry. This study provides policy recommendations which will enhance shareholder value and, in this way, contribute to greater stability in the banking sector in developing countries, in particular.

scholarly journals Does competition only impact on insolvency risk? New evidence from the Chinese banking industry

2017 ◽  
Vol 13 (3) ◽  
pp. 332-354 ◽  
Author(s):  
Yong Tan ◽  
John Anchor
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Banking Industry ◽  
Liquidity Risk ◽  
Empirical Literature ◽  
Content Type ◽  
Insolvency Risk ◽  
Chinese Banking Industry ◽  
The Impact ◽  
Chinese Banking

Purpose The purpose of this paper is to investigate the impact of competition on credit risk, liquidity risk, capital risk and insolvency risk in the Chinese banking industry during the period 2003-2013. Design/methodology/approach This study uses a generalized method of moments system estimator to examine the impact of competition on risk. In particular, translog specifications are used to measure the competition and insolvency risk. Findings The results show that greater competition within each bank ownership type (state-owned commercial banks, joint-stock commercial banks and city commercial banks) leads to higher credit risk, higher liquidity risk, higher capital risk, but lower insolvency risk. Originality/value This paper is the first piece of research testing the impact of competition on different types of risk in banking industry and it further contributes to the empirical literature by using a more accurate competition indicator (efficiency-adjusted Lerner index) and a more precise insolvency risk indicator (stability inefficiency).

Determinants of non-performing loans in Chinese banks

2018 ◽  
Vol 12 (3) ◽  
pp. 273-289 ◽  
Author(s):  
Muhammad Umar ◽  
Gang Sun
Keyword(s):  
Risk Taking ◽  
Inflation Rate ◽  
Banking Industry ◽  
Foreign Exchange Rate ◽  
Bank Risk ◽  
Content Type ◽  
Credit Quality ◽  
Independent Variables ◽  
Chinese Banks ◽  
Risk Taking Behavior

Purpose The study aims to explore macroeconomic and banking industry-specific determinants of non-performing loans (NPLs) for Chinese banks, spanning from 2005 to 2014. Design/methodology/approach It uses three different models to explore the determinants. The first model has only macroeconomic variables as regressors; the second model has only banking industry-specific variables as independent variables; and the third model has macroeconomic and banking industry-specific variables as explanatory variables. Furthermore, system generalized method of moments estimation technique has been used to measure the coefficients of independent variables. Findings Gross domestic product (GDP) growth rate, effective interest rate, inflation rate, foreign exchange rate, type of bank, bank risk-taking behavior, ownership concentration, leverage and credit quality are significant determinants of NPLs in Chinese banks. Furthermore, the determinants of NPLs for listed and unlisted banks differ. Determinants of NPLs of listed banks include GDP, bank risk-taking behavior and credit quality. However, variation in NPLs of unlisted banks is explained by GDP, inflation rate, foreign exchange rate, bank risk-taking behavior, leverage and credit quality. Originality/value This study also finds that using only macroeconomic or banking industry-specific variables as regressors is not a right approach because it may lead to erroneous conclusions.

Sign in / Sign up

Export Citation Format

Share Document