Bank soundness and liquidity creation

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahmad Sahyouni ◽  
Mohammad A.A. Zaid ◽  
Mohamed Adib
Keyword(s):  
Balance Sheet ◽  
Negative Relationship ◽  
Capital Adequacy ◽  
Rating System ◽  
Content Type ◽  
Mena Countries ◽  
Earning Ability ◽  
Asset Quality ◽  
The Relationship ◽  
Bank Soundness

PurposeThe purpose of this paper is to investigate how much liquidity banks create and how liquidity creation changed over time in the MENA countries and to examine the soundness of banks in these countries based on the CAME rating system, in addition to investigating the relationship between CAME ratios and liquidity creation of these banks.Design/methodology/approachThe study regresses the CAME ratios together with other control variables to model liquidity creation. The robustness of the results is evaluated by using a different measure of liquidity creation and by excluding the observations of the Islamic banks.FindingsThe results show that the CAME rating system, as an indicator of bank soundness, is negatively related to bank liquidity creation. Specifically, capital adequacy, management efficiency and earning ability ratios affect the on-balance sheet components of liquidity creation, while asset quality ratio affects its off-balance sheet component.Practical implicationsThe paper offers insights to regulators and banks managers in terms of better understanding of the negative relationship between CAME rating system and bank liquidity creation.Originality/valueThis paper sheds more light on the relationship between bank soundness and liquidity creation by using the ratios of the CAMEL rating system as an indicator of bank strength and soundness.

scholarly journals Is Risk Based Capital Ratio a True Measure of the Soundness of Banks? Evidence From India

2021 ◽  
Vol 12 (3) ◽  
pp. 92
Author(s):  
J. Navas ◽  
P. Dhanavanthan ◽  
D. Lazar
Keyword(s):  
Capital Adequacy ◽  
Management Quality ◽  
Financial Soundness ◽  
Six Dimensions ◽  
Key Dimensions ◽  
Earning Ability ◽  
Using Data ◽  
Indian Banks ◽  
Asset Quality ◽  
The Relationship

The capital to risk-weighted assets ratio (CRAR) introduced by the Basel Committee on Banking Supervision (BCBS) of the Bank for International Settlement (BIS) is widely used as an important measure of the soundness of banks. However, international institutions, academics, and market analytics have increasingly questioned the reliability of the ratio which has been revised a number of times since its inception, to make it more robust. The main objective of the present study is to assess the adequacy of using CRAR as a measure of the soundness of banks. One of the most popular methods used for the analysis of the banks’ financial soundness is CAMELS framework which uses six key dimensions: capital adequacy, asset quality, management quality, earning ability, liquidity, and sensitivity to market risk. Before the introduction of CRAR, the ratio of capital to the total assets was widely used as a measure of capital adequacy in the CAMELS framework. However, when risk-based CRAR was introduced, banking regulators and policymakers started using it in the CAMELS framework for representing capital adequacy. In this paper, we argue that CRAR, as a comprehensive forward-looking measure, encapsulates all the six dimensions of the financial soundness of banks, representing various facets of banking operations, which are covered in the CAMELS framework. We, therefore, develop a theoretical framework to establish the relationship between risk-based CRAR and the important ratios used under the CAMELS framework and then empirically investigate the relationship using a panel regression model using data of Indian banks for the period 2009–2018. The results indicate that CRAR has a significant and theoretically consistent relationship with all six dimensions of the CAMEL framework. The study, therefore, does not only confirm the appropriateness of using CRAR as a measure of the soundness of banks, but also opens up a debate on whether CRAR can be an alternative for the CAMELS framework.

STUDY OF CAMEL RATING SYSTEM IN BANKING SUPERVISION- A CASE STUDY OF NEPAL BANGLADESH BANK LTD

2018 ◽  
Vol 1 (3) ◽  
pp. 74-96
Author(s):  
Dr. S.U. Gawde ◽  
Prof.. Alekha Chandra Panda ◽  
Prof. Devyani Ingale
Keyword(s):  
Banking Sector ◽  
Capital Adequacy ◽  
Rating System ◽  
Financial Risks ◽  
Economic Activities ◽  
Effective Measure ◽  
Critical Elements ◽  
Financial Soundness ◽  
The Usa ◽  
Asset Quality

The banking sector  plays in important role in the country’s economy, acting as an intermediary to all industries. As the banking sector has a major impact on the economy as a whole. Performance evaluation of the banking sector is an effective measure and indicator to check the soundness of economic activities of an economy. Many methods are employed to analyse banking performance. One of the popular methods is the CAMELS framework, developed in the early 1970’s by federal regulators in the USA. The CAMELS rating system is based upon an evaluation of six critical elements of a financial institution’s operations: Capital adequacy, Asset quality, Management soundness, Earnings and profitability, Liquidity, and Sensitivity to market risk. Under this bank is required to enhance capital adequacy, strengthen asset quality, improve management, increase earnings, maintain liquidity, and reduce sensitivity to various financial risks. In the present study an attempt was made to evaluate the performance & financial soundness of NEPAL BANGLADESH BANK LTD using CAMEL approach. Quantitative parameters are computed and updated on a quarterly basis while in respect of the qualitative parameters the ratings / marks given at the time of previous on-site examination

I'll manage myself: the moderator effect of positive framing on the relationship between organisational politics and engagement

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Robinson James
Keyword(s):  
Work Engagement ◽  
Structural Equation ◽  
Harmful Effect ◽  
Negative Relationship ◽  
Partial Least Square ◽  
Least Square ◽  
Moderator Effect ◽  
Content Type ◽  
The Relationship ◽  
Organisational Politics

PurposeThis study aims to investigate the influence of organisational politics on work engagement and the moderator effect of positive framing on this relationshipDesign/methodology/approachData were collected from 241 public sector employees in Sri Lanka through a structured questionnaire and analysed with partial least square structural equation modelling (PLS_SEM).FindingsThe results indicated that organisational politics negatively influenced employees' work engagement, positive framing positively influenced engagement and weakened the negative relationship between politics and engagement.Practical implicationsThis study suggests that organisation and individuals must take the necessary steps to enhance work engagement. Organisations must be transparent in all activities to avoid employees' negative perception. Also, organisations need to take steps to recruit employees with positive framing or develop this competency through training and development. Individuals also need to take necessary steps to frame the work environment positively to enhance their engagement in work.Originality/valueThis study extends the literature by being the first to examine the positive framing as a moderator in the relationship between politics and engagement. This study found that positive framing as a resource reduced the harmful effect of organisational politics on engagement and suggested positive framing can be considered as a resource in the future investigation of the job demand–resource model.

scholarly journals A Study on Financial Performance of the Jordanian Commercial Banks using the CAMEL Model and Panel Data Approach

2020 ◽  
Vol 9 (4) ◽  
pp. 111-130
Author(s):  
Jamil Al Zaidanin
Keyword(s):  
Commercial Banks ◽  
Negative Relationship ◽  
Capital Adequacy ◽  
Primary Data ◽  
Quality Level ◽  
Financial Reports ◽  
Interest Income ◽  
Lending Policy ◽  
Performance Determinants ◽  
Asset Quality

The purpose of this research paper is to extensively investigate and examine the effect of the CAMEL model variables on the profitability and financial soundness of the thirteen Jordanian commercial banks for the period of 2013 to 2019, the primary data were collected from the published audited financial reports of the Jordanian commercial banks. The study uses CAMEL model variables of Capital adequacy, Asset Quality, Management efficiency, Earnings ability, and Liquidity management to rank banks as per their overall performance and measuring their effect on banks’ profitability measures of Return on Assets and Return on Equity separately through applying the fixed effect regression model. It is concluded that the ranking approach shows that Bank of Jordan was in the top position followed by the Capital Bank of Jordan. Jordan Ahli Bank was in the lowest rank in most positions. Furthermore, the empirical results indicates that Non-Interest Income to Total Assets and Net Interest Income to Total Loans and Advances have significant positive relationships with both profitability measures whereas cost to Total Income and Non-Interest Income to Total Assets have strong negative relationships with the profitability measures. In addition, Equity to Total Assets has strong negative relationship with ROE. The study suggests that Jordanian commercial banks can improve their profitability through the concentration on main activities, efficiently managing their capital adequacy, maintaining high quality level of lending policy, and utilization of full assets. Additionally, the current study recommends conducting more studies on banks’ performance determinants with an expanded scope and using more financial models besides the CAMEL model.

scholarly journals Bank Regulation and Level of Non performing Loans in Commercial Banks in Nakuru County Kenya

2020 ◽  
Vol 2 (2) ◽  
pp. 59-76
Author(s):  
Geoffrey Indeje Muhanji ◽  
Joseph Theuri
Keyword(s):  
Central Bank ◽  
Commercial Banks ◽  
Bank Regulation ◽  
Capital Adequacy ◽  
Liquidity Management ◽  
Macroeconomic Factors ◽  
Nonperforming Loans ◽  
Management Efficiency ◽  
Asset Quality ◽  
The Relationship

The study sought to determine the effect of bank regulation and level of nonperforming loans in commercial banks in Nakuru County Kenya. The specific objectives of the study were to explore the effect of capital adequacy on the level of nonperforming loans in commercial banks in Nakuru County Kenya, to find out the effect of asset quality on the level of nonperforming loans in commercial banks in Nakuru County Kenya, to evaluate the effect of liquidity management on the level of nonperforming loans in commercial banks in Nakuru County Kenya, to examine the effect of management efficiency on the level of nonperforming loans in commercial banks in Nakuru County Kenya and to determine the moderating effect of macroeconomic factors on the relationship between bank regulation and level of nonperforming loans. The literature review focused on portfolio theory of investment, capital asset pricing theory and the capital buffer theory of capital adequacy. The primary data was collected using structured questionnaires and secondary data was collected from the banking survey 2017 and central bank of Kenya annual supervisory reports. The study employed multiple linear regression analysis and the finding revealed that there exist a negative and statistically insignificant relationship between capital adequacy and non-performing loans. It was also observed that there exist a negative and statistically insignificant relationship between liquidity management and non-performing loans. On the other hand, there exist a positive and statistically significant relationship between asset quality and non-performing loans. Similarly, there exist a positive and statistically insignificant relationship between management efficiency and non-performing loans. Finally, the findings indicated that macroeconomic factors have moderating effect on the relationship between bank regulations and non-performing loans in commercial banks in Nakuru County. It was concluded that asset quality positively influences non-performing loans while management efficiency influence positively the non-performing loans. Similarly, liquidity management exerts a negative influence on non-performing loans. Finally, capital adequacy influence negatively on non-performing loans. The study recommends that Central Bank of Kenya should regularly access lending behavior to ensure compliance with banking regulations to avoid increasing incidences of non-performing loans. In addition, Central Bank of Kenya should closely monitor banks with deteriorating asset quality. Further, Central Bank of Kenya should strictly monitor the economic sector and ensure that banks provide adequate provisions for loans to mitigate risks of default. Furthermore, banks should maintain a good balance on deposits and lending out loans and adhere to regulators decisions about monetary policies. Finally, banks should increase the operational efficiency of operation weakness and improve corporate governance on the sanction of loans and Central Bank of Kenya should focus on managerial performance in order to detect banks with potential increases in non-performing loans.

Breach or bridge your career? Understanding the relationship between career plateau and internal employability

2018 ◽  
Vol 47 (5) ◽  
pp. 986-1002 ◽  
Author(s):  
Yi-chun Lin ◽  
Angela Shin-yih Chen ◽  
Yu-ting Lai
Keyword(s):  
Psychological Contract ◽  
Negative Relationship ◽  
Psychological Contract Breach ◽  
Hierarchical Regression ◽  
Contract Breach ◽  
Content Type ◽  
Career Plateau ◽  
Job Content ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to identify the impact of career plateau (hierarchical and job-content plateau) on internal employability, and to investigate psychological contract breach as a moderator on the relationship between career plateau (hierarchical and job-content plateau) and internal employability. Design/methodology/approach Data were collected by distributing paper-based questionnaires to 521 workers in private banking sectors in Taiwan. Hierarchical regression analysis was used to examine the results of the relationships. Findings The results supported the idea that career plateau (hierarchical and job-content plateaus) could be a significant antecedent of internal employability. Psychological contract breach significantly moderated the negative relationship between career plateau (hierarchical and job-content plateau) and internal employability. Specifically, the negative relationship between career plateau and internal employability will be stronger for employees who perceive a higher level of psychological contract breach. Practical implications These findings can help human resource practitioners gain a better understanding of the value of applicable approaches as an influence on a plateaued employee’s perception of internal employability, and to facilitate a positive employer–employee relationship, which could foster both a successful career for an individual and a prosperous performance for the organization that employs them. Originality/value Career plateau have been aroused variety issues in HR practice, but employability and psychological contract breach have barely been discussed with career plateau. This study empirically establishes the correlation between career plateau and internal employability as well as shown that psychological contract breach would decrease the plateaued individual’s willingness to stay in the current organization. Thus, the career plateau may provide organizations with a helpful perspective on one’s career development. Building substantial relationships between employees and employers lead to better human capital for organizations as it deals with rapidly changes in the real world.

Intangible assets and trade credit policy

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sarah Taylor Hartsema ◽  
Chris Harris ◽  
Zhe Li ◽  
Thibaut G. Morillon
Keyword(s):  
Trade Credit ◽  
Intangible Assets ◽  
Negative Relationship ◽  
Intangible Asset ◽  
Financial Constraint ◽  
Sales Growth ◽  
Credit Policy ◽  
Content Type ◽  
The Relationship ◽  
Practical Implications

PurposeThe purpose of this paper is to identify whether the rise in intangible asset investment is related to trade credit investment and whether this relationship is driven by financial constraint and other firm factors.Design/methodology/approachThe study conducts fixed effect regressions testing the relationship between trade credit investment and intangible asset levels. The relationship is further examined for all firms based on product type, financial constraint and sales growth.FindingsThere is a negative relationship between investment in trade credit and the level of intangible assets as a proportion of total assets. This negative relationship is largely explained by firms in industries that traditionally utilize more trade credit, firms with financial constraints and firms with low sales growth.Practical implicationsThe level of investment in intangible assets continues to rise, while investment in trade credit is declining. This paper is the first to identify whether these trends could be related and to provide some explanation why.Originality/valueThis study is the first to link investment in trade credit with investment in intangible assets. There is a negative relationship that is most pronounced for firms that typically offer more trade credit, that are experiencing financial constraint and that are experiencing low growth.

How does bank liquidity creation affect non-performing loans in the MENA region?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anas Alaoui Mdaghri
Keyword(s):  
Generalized Method Of Moments ◽  
Balance Sheet ◽  
Policy Implications ◽  
Mena Region ◽  
Policy Makers ◽  
Content Type ◽  
Mena Countries ◽  
Negative Effect ◽  
Short And Long Term ◽  
Conventional Banks

PurposeThe study aims to empirically examine the effect of bank liquidity creation on non-performing loans (NPLs) in the Middle East and North Africa (MENA) region.Design/methodology/approachBerger and Bouwman's (2009) three-step methodology was employed to calculate the level of liquidity creation of a selected sample of 111 commercial banks in ten MENA countries from 2010–2017. Next, the two-step system generalized method of moments (GMM) estimator was used to investigate the linkage between bank liquidity creation and NPLs.FindingsThe results demonstrated a significant negative effect of bank liquidity creation on NPLs in the short and long term, implying that liquidity creation through both on- and off-balance sheet activities decreases NPLs. These findings accord with the “economic-enhancing” view. Furthermore, regression analysis investigated whether this relationship remained similar for Islamic and conventional banks. The results showed that liquidity creation diminishes Islamic and conventional bank NPLs.Research limitations/implicationsThe empirical findings raise several significant policy implications. Bank liquidity creation may decrease rather than increase NPLs, although the process of liquidity creation is viewed as risky by rendering banks more illiquid. Therefore, policy-makers should encourage bank liquidity creation to stimulate the economy. In a robust economy, borrowers are more likely to repay their debts, consequently diminishing banks' NPLs.Originality/valueTo the best of the author's knowledge, the current study is the first to provide empirical evidence on the effect of bank liquidity creation on NPLs in MENA countries.

What Are the Leading Bank-Specific and Macroeconomic Factors Influencing Islamic Bank Performance?

2021 ◽  
pp. 153-171
Author(s):  
Mosharrof Hosen
Keyword(s):  
Positive Impact ◽  
Least Square ◽  
Capital Adequacy ◽  
Islamic Banks ◽  
Cross Sectional ◽  
Macroeconomic Factors ◽  
Mena Countries ◽  
Ordinary Least Square ◽  
Islamic Bank ◽  
Asset Quality

Despite the proven sustainability and growth of Islamic banks during the financial crisis period, many scholars criticise the current performance of Islamic banks. Therefore, policymakers are continuously getting worried due to inconclusive finding of different research related to Islamic bank profitability. To shed the light of raising concern, this study investigates the issue from considering both macroeconomic and bank-specific factors. The annual cross-sectional data has been collected from 46 Islamic banks in 10 selected MENA countries over the period 2015-2019. The standardized pooled ordinary least square (OLS) approach's findings revealed that bank size, capital adequacy, GDP, and inflation have a significant positive impact on Islamic banks' return on asset, but asset quality has no significant effect on ROA. In contrast, most of the variables have an insignificant effect of ROE. Investors, financial analysts, and policymakers will get benefits from this study's results to secure their investment by successfully controlling the above-mentioned leading factors.

Slowdown in Bank Credit Growth: Aggregate Demand or Bank Non-performing Assets?

2018 ◽  
Vol 12 (3) ◽  
pp. 257-275 ◽  
Author(s):  
Ashima Goyal ◽  
Akhilesh Verma
Keyword(s):  
Interest Rates ◽  
Aggregate Demand ◽  
Balance Sheet ◽  
Bank Lending ◽  
Jel Classification ◽  
Capital Adequacy ◽  
Credit Growth ◽  
Bank Ownership ◽  
Negative Effect ◽  
Asset Quality

We estimate the determinants of credit and of non-performing assets (NPAs) using a firm and a bank panel with data up to 2015 in order to test bank lending against the aggregate demand channel as an explanation for slow Indian credit growth. The results support demand as the key constraint. Only demand variables affect corporate credit for a broad set of firms. Balance sheet weakness reduced credit only for a narrow subset of indebted firms in a difference-in-difference type analysis. Even so, sales remained the dominant variable. From the bank panel, the asset quality review (AQR) did have a strong negative effect on advances but gross NPAs did not. While high interest rates and low growth raised NPAs, so did past credit. Low demand not only reduced credit, it also increased NPAs. That the capital adequacy ratio (CAR) significantly reduces NPAs points to the productivity of fund infusion. When other determinants are controlled, bank ownership does not affect NPA ratios, again supporting external shocks as causal. The results suggest that apart from structural reform to clean balance sheets, recovery of demand is necessary for revival of credit growth. JEL Classification: G21, E51

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