How to explain the liquidity risk by the dynamics of discretionary loan loss provisions and non-performing loans? The impact of the global crisis

2019 ◽  
Vol 45 (2) ◽  
pp. 244-262 ◽  
Author(s):  
Youssef Mohamed Riahi
Keyword(s):  
Financial Services ◽  
Banking Sector ◽  
Liquidity Risk ◽  
Loan Loss ◽  
Global Crisis ◽  
Content Type ◽  
Loan Loss Provisions ◽  
Significant Difference ◽  
The Impact ◽  
Practical Implications

PurposeThe purpose of this paper is to investigate the impact of discretionary loan loss provisions (DLLPs) and non-performing loans (NPLs) on the liquidity risk of both Islamic banks (IBs) and conventional banks (CBs) before and after the global crisis that hit nations belonging to the Gulf Cooperation Council (GCC).Design/methodology/approachThis empirical study uses balanced panel data on 16 IBs and 58 CBs operating in the six Gulf Cooperation states covering 2000–2014. The data were obtained from the Bankscope database and the banks’ annual reports.FindingsThe results indicate that NPLs affect liquidity risk differently across the banks – specifically, there is a significant difference in the funding and managing of liquidity between the two bank types. The authors find that the influence of DLLPs does not vary across the banks in the overall analysis and before the crisis. This finding provides insights into the unique nature of banking risks in dual banking systems. The authors also find that after the crisis, the discretionary LLPs affected liquidity risk differently across the banks.Practical implicationsThis study has several practical implications. First, the findings suggest that the Islamic Financial Services Board and other IBs regulators should reassess several regulations, principles and products in order to reduce their credit and liquidity risks. Second, the study emphasizes the need for banks to perform a careful assessment of the effects of their LLP policies. Finally, the findings are also relevant to bankers, as they provide empirical evidence on the effect of loan growth on bank liquidity, suggesting that bankers should improve their loan management.Originality/valueFirst, this is the first study to examine discretionary LLPs, NPLs and liquidity risk in IBs; it is also the first comparative study between Islamic and CBs. Second, the study provides evidence on how the global crisis impacted the banking sector and identifies some of the main determinants of liquidity risk for both Islamic and CBs operating in GCC countries.

FIFA – highlighting the links between global banking and international money laundering

2018 ◽  
Vol 21 (4) ◽  
pp. 498-512 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Money Laundering ◽  
Financial Services ◽  
Banking Sector ◽  
Due Diligence ◽  
Content Type ◽  
Services Sector ◽  
Financial Services Sector ◽  
Global Banking ◽  
Beneficial Ownership ◽  
The Impact

PurposeThis paper uses the recent (August 2015) FIFA arrests to provide an example of how illicit financial flows are occurring through the formal banking and financial services sector. The purpose of this paper is to explore which elements of anti-money laundering (AML) compliance need to be addressed to strengthen the banking response and reduce the impact of IFFs within the banking sector.Design/methodology/approachThe paper is based on the indictment document currently prepared for the FIFA arrests and the District Court case of Chuck Blazer the FIFA Whistleblower. It uses the banking examples identified in the indictment as typologies of money laundering and wire fraud. Corresponding industry reports on AML compliance are included to determine where the major weaknesses and gaps are across the financial service.FindingsThe main findings from the analysis are that banks still have weak areas within AML compliance. Even recognised red flag areas such as off shore havens, large wire transfers and front companies are still being used. The largest gaps still appear to be due diligence and beneficial ownership information.Research limitations/implicationsThe research topic is very new and emerging topic; therefore, analysis papers and other academic writing on this topic are limited.Practical implicationsThe research paper has identified a number of implications for the banking sector, addressing AML deficiencies, especially the need to consider the source of funds and the need for further enhanced due diligence systems for politically exposed and influential people and the importance of beneficial ownership information.Social implicationsThis paper has implications for the international development and the global banking sector. It will also influence approaches to AML regulation, risk assessment and audit within the broader financial services sector.Originality/valueThe originality of this paper is the link between the emerging issues associated with allegations of bribery and corruption within FIFA and the illicit financial flow implications across the banking sector.

Beyond placement, layering and integration – the perception of trade-based money laundering risk in UK financial services

2019 ◽  
Vol 22 (4) ◽  
pp. 614-625 ◽  
Author(s):  
Mario Menz
Keyword(s):  
Money Laundering ◽  
Financial Services ◽  
Design Methodology ◽  
Banking Sector ◽  
Trade Finance ◽  
Content Type ◽  
Proceeds Of Crime ◽  
The Uk ◽  
Practical Implications ◽  
Insight Into

Purpose The purpose of this study was to investigate the perception of trade-based money laundering in Letters of Credit (“L/C”) transactions among trade finance practitioners in the UK banking sector and to compare it to the perception of the same risk by the Financial Conduct Authority (“FCA”), the regulator of the UK’s banking sector. Design/methodology A survey was used to carry out research among financial services professionals engaged in trade finance in the UK. Findings This paper contributes to the existing literature in a number of ways. First, it investigates the perception of trade-based money laundering risk from the perspective of financial services professionals, which has not previously been done. Second, it argues that the perception of trade-based money laundering in financial services is overly focussed on placement, layering and integration, and that the full extent of the offence under the Proceeds of Crime Act 2002 is less well known. It further found that financial services firms need to improve their understanding of the nature of trade-based money laundering under UK law. Practical implications This study argues that the financial services sector’s perception of trade-based money laundering risk in trade finance is underdeveloped and makes suggestions on how to improve it. Originality/value It provided unique insight into the perception of trade-based money laundering risk among financial services professionals.

Controversial product advertisements in Lebanon

2015 ◽  
Vol 6 (1) ◽  
pp. 22-43 ◽  
Author(s):  
Maya F. Farah ◽  
Lamis El Samad
Keyword(s):  
Representative Sample ◽  
Design Methodology ◽  
Content Type ◽  
Significant Difference ◽  
Religious Sect ◽  
Religious Sects ◽  
The Impact ◽  
Consumer's Perception ◽  
Minimal Research ◽  
Practical Implications

Purpose – The purpose of this paper is to examine the impact of religious sect on the Lebanese consumer’s perception of controversial product advertisements. Design/methodology/approach – The study used a quantitative survey that was administered to a purposive representative sample of respondents from the two main Muslim sects in the country, namely, Sunni and Shiite Muslims. Findings – The results indicated significant differences in perceptions between Sunni and Shiite Muslims with regards to the offensiveness of the advertising of controversial products. Briefly, Sunni Muslims found the advertising of social and political as well as health and care products more offensive, whereas Shiite Muslims found the advertising of gender and sex-related products more offensive, and no significant difference in offensiveness perception between the two sects was found with regards to the advertising of addictive products. Research limitations/implications – Two main limitations faced the researchers: the fact that the respondents were not shown examples of offensive product advertisements; and that religiosity was not measured for the respondents, which could also be a factor in offensiveness perception. Practical implications – The study indicates that a consumer’s religious sect can play a determining role in how he/she perceives product advertisement, thus encouraging marketers to consider the differences between these sects while advertising to ensure no potential consumers are alienated. Originality/value – Although research has looked into the impact of religiosity and religion on the perception of offensive product advertisements, minimal research exists on the impact of religious sects on the perception of offensive product advertisement. The results of this study provide some insights into the consumer behavior differences between the two sects.

What is new after Liu: unsettled questions surrounding SEC disgorgement

2020 ◽  
Vol 21 (2/3) ◽  
pp. 127-135
Author(s):  
M. Alexander Koch ◽  
Carmen J. Lawrence ◽  
Aaron Lipson ◽  
Russ Ryan ◽  
Richard H. Walker ◽  
...  
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Federal District ◽  
District Court ◽  
Content Type ◽  
Equitable Relief ◽  
Practical Guidance ◽  
Court Proceedings ◽  
The Impact ◽  
Practical Implications

Purpose To analyze the impact of the U.S. Supreme Court’s decision in Liu v. SEC, where the Court confronted the issue of whether the SEC can obtain disgorgement in federal district court proceedings. Design/methodology/approach This paper provides an overview of the authors’ prior work analyzing courts’ treatment of SEC disgorgement and a summary of the background and opinion in Liu v. SEC. This article then focuses on the practical implications of Liu on SEC disgorgement by considering questions left open by the decision. Findings The Court in Liu held that the SEC is authorized to seek disgorgement as “equitable relief” as long as it “does not exceed a wrongdoer’s net profits and is awarded for victims.” But the Court left many unanswered questions, such as whether disgorged funds must always be returned to investors for disgorgement to be a permissible equitable remedy, whether the SEC can obtain joint-and-several disgorgement liability from unrelated co-defendants, what “legitimate expenses” should be deducted in disgorgement calculations, and to what extent the SEC can seek disgorgement in cases when victims are difficult to identify. Originality/value Original, practical guidance from experienced lawyers in financial services regulatory and enforcement practices, many of whom have previously worked in the SEC’s Division of Enforcement.

Examining the relationship between bank stability and earnings quality in Islamic and conventional banks

2020 ◽  
Vol 13 (5) ◽  
pp. 803-826
Author(s):  
Youssef Riahi
Keyword(s):  
Earnings Quality ◽  
Gulf Cooperation Council ◽  
Net Income ◽  
Loan Loss ◽  
Bank Stability ◽  
Content Type ◽  
Banking Stability ◽  
Conventional Banks ◽  
The Impact ◽  
Practical Implications

Purpose The purpose of this paper is to investigate the effect of earnings quality on banking stability in Gulf Cooperation Council countries. First, the author isolates the discretionary loan loss provision (DLLP) to investigate the impact of total LLP, DLLP, discretionary accruals and a small positive variation in net income on bank stability. Second, the author investigates differences that may exist between Islamic banks (IBs) and conventional banks (CBs) in terms of the impact of DLLP on bank stability. Design/methodology/approach This research is based on unbalanced panel data for 39 IBs and 64 CBs in the six Gulf Cooperation Council countries over the 2000–2014 period. Findings The findings indicate that the extent of stability is negatively associated with the level of DLLP. This study also found significant differences between the two banking sectors in the effect of DLLP on bank stability. Practical implications This study has various practical implications. First, it provides insights for governments and regulators about introducing instruments like borrower restrictions and dynamic provisions to reduce LLP, because it negatively affects banking stability. Second, bankers should carefully assess the effects of their LLP strategies to overcome any negative effects. Third, the findings are also relevant to shareholders, investors and bank customers. More specifically, the results will help to improving their understanding of how LLP is not a financial strength and it is subject to managers’ opportunism that can lead to a financial instability. Finally, this study’s results encourage researchers to investigate an unexplored question, namely, the procyclicality of LLP and its determinants and effects. Originality/value To the best of the author’s knowledge, this is the first study to investigate differences that may exist between Islamic and CBs in terms of the impact of DLLP on bank stability.

scholarly journals Globalization and bank efficiency nexus: empirical evidence from the Malaysian banking sector

2017 ◽  
Vol 24 (5) ◽  
pp. 1269-1290 ◽  
Author(s):  
Fadzlan Sufian ◽  
Fakarudin Kamarudin ◽  
Annuar Md. Nassir
Keyword(s):  
Empirical Evidence ◽  
Financial Services ◽  
Banking Sector ◽  
Economic Globalization ◽  
Bank Efficiency ◽  
Content Type ◽  
Macroeconomic Conditions ◽  
Cultural Proximity ◽  
Political Globalization ◽  
The Impact

Purpose The purpose of this paper is to provide a new empirical evidence on the impact of economic globalization on the efficiency of the banking sector. The paper also investigates to what extent the internal (i.e. bank specific characteristics) and external (i.e. macroeconomic conditions) factors influence the efficiency of banks while controlling for the impact of the different dimensions of globalization. Design/methodology/approach The analysis is confined into two stages. In the first stage, the authors employ the bias-corrected data envelopment analysis method to compute the efficiency of individual banks during the period 1999-2012. The authors then use bootstrap regressions to examine the impact of economic globalization on bank efficiency, while controlling for the potential impacts of contextual variables. Findings The empirical findings indicate that the impacts of personal contacts, information flows, and cultural proximity seem to work in favor of Malaysian banks’ efficiency. A plausible reason could be due to the fact that capital account liberalization is usually accompanied by liberalization of the financial services sector, resulting in a greater competition and subsequently eroding monopolistic profits. The empirical findings also bring forth the importance of and political globalization in determining the efficiency of banks operating in the Malaysian banking sector. Originality/value The present study aims to provide for the first time empirical evidence on the performance of the banking sector and to establish new empirical evidence on the impact of globalization. The empirical evidence on the impact of globalization on the banking sector is completely missing from the literature.

Earnings management and evolution of the banking regulation

2015 ◽  
Vol 5 (2) ◽  
pp. 150-169 ◽  
Author(s):  
Sarra Hamza Elleuch ◽  
Nelia Boulila Taktak
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Mixed Model ◽  
Banking Regulation ◽  
Loan Loss ◽  
Content Type ◽  
Loan Loss Provisions ◽  
Qualitative Approaches ◽  
The Impact ◽  
The Imf

Purpose – The purpose of this paper is to examine the earnings management practices of Tunisian banks after the publication of the first International Monetary Fund (IMF) report (2002) over the period 1998-2007. Design/methodology/approach – The study relies on a mixed model that combines both the quantitative and qualitative approaches. First of all, we use the quantitative method to measure the discretionary loan loss provisions based on the model of Cornett et al. (2009), and then we validate the quantitative findings by using the interview approach. Findings – Since 2005, Tunisian banks have resorted less and less to accounting earnings management through the loan loss provisions, but conversely, real earnings management has been revealed instead by the sale of investment securities and the use of debt collection agencies. Despite the IMF recommendations, Tunisian banks continue to manage their earnings by changing only their strategies. Practical implications – The findings of this study show that the regulation cannot avoid earnings management. Even if the regulation limits the discretion of the manager, the latter finds new alternatives to manipulate the earnings. Originality/value – This is the first study that analyses the impact of the IMF recommendations on earnings management in an emerging economy.

Illicit financial flows: HSBC case study

2018 ◽  
Vol 21 (2) ◽  
pp. 231-246 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Money Laundering ◽  
Financial Services ◽  
Banking Sector ◽  
Financial Flows ◽  
Content Type ◽  
Services Sector ◽  
Financial Services Sector ◽  
Beneficial Ownership ◽  
Illicit Financial Flows ◽  
The Impact

Purpose This paper provides examples of how illicit financial flows (IFFs) are occurring through the formal banking and financial services sector. The purpose of this paper is to explore which elements of anti-money laundering (AML) compliance need to be addressed to strengthen the banking response and reduce the impact of IFFs within the banking sector. Design/methodology/approach The paper uses a number of sources of secondary data including the Swiss leaks data for HSBC and also the Permanent Sub Committee Report on HBUS in the USA, the OECD report on money laundering compliance and Financial Action Task Force (FATF) guidelines on beneficial ownership. It links this information to the relevant IFF reports produced through Global Financial Integrity to highlight the connection between banking AML compliance and IFF transfers through the banking sector. Findings The main findings from the analysis are that banks have a greater legal responsibility towards detecting and reporting suspicious transactions than they would have previously considered. This includes identifying the source and purpose of fund transfers and establishing the beneficial ownership of recipients. Research limitations/implications The research topic is new; therefore, analysis papers and other academic writing on this topic are limited. Practical implications The research paper has identified a number of implications to the banking sector on addressing AML deficiencies, especially the need to improve standards of beneficial ownership verification and customer due diligence (CDD) checks for politically exposed persons. Social implications This paper has implications for the international development and the global banking sector. It will also influence approaches to AML regulation, risk assessment and audit within the broader financial services sector. Originality/value The originality of this paper is the link between the HSBC cases and IFFs and the implications this will have for future AML compliance processes across the banking sector.

Evaluating profitability strategies and the determinants of the risk performance of sectoral and banking institutions

2018 ◽  
Vol 34 (3) ◽  
pp. 174-186 ◽  
Author(s):  
Walter Amedzro St-Hilaire ◽  
Patrick Boisselier
Keyword(s):  
Fixed Effects ◽  
Banking Sector ◽  
Risk Measures ◽  
Relevant Literature ◽  
Generalized Least Squares ◽  
Loan Loss ◽  
Content Type ◽  
Explanatory Variables ◽  
Loan Loss Provisions ◽  
Banking Institutions

Purpose The purpose of this paper is to evaluate the need to incorporate the loan loss provisions (LLPs) and risk measures in order to examine the repercussions on advancing approach and profitability. Design/methodology/approach The study investigates the effect of explanatory variables on profitability and advancing approach of the banks. The variables used in this study were determined, based on the review of relevant literature and established according to the availability of data for measurement purposes. Inspired by previous research, Hausman test is used in this study to determine whether a random or fixed effects generalized least squares model is best. The linear regression model is applied to strongly balanced panel data obtained from the ten commercial banks. Findings The findings demonstrate that Nigerian banking sector considers LLPs in terms of its decision making of advancing approach, while proper inclusion of credit, market and operational risk is more important for South Africa’s banks rather than the maintenance of provisions. Originality/value Moreover, the credit risk proves to be more needed factor of consideration for Nigerian rather for South African banks. This is an answer to the strong economy of South Africa as compared to Nigeria and more chances of default faced by Nigerian banks.

The determinants of bank profitability: empirical evidence from European banking sector

2016 ◽  
Vol 14 (1) ◽  
pp. 86-115 ◽  
Author(s):  
Elisa Menicucci ◽  
Guido Paolucci
Keyword(s):  
Banking Sector ◽  
Developed Countries ◽  
Policy Implications ◽  
Loan Loss ◽  
Data Set ◽  
Bank Profitability ◽  
Content Type ◽  
Loan Loss Provisions ◽  
European Banking ◽  
European Banks

Purpose The purpose of this paper is to investigate the relationship between bank-specific characteristics and profitability in European banking sector to find the role of internal factors in achieving high profitability. Design/methodology/approach A regression analysis is built on an unbalanced panel data set comprising 175 observations of 35 top European banks over the period 2009-2013. To this end, the empirical data are collected from Bankscope and a comprehensive set of internal characteristics is examined. Findings All the determinant variables included in the model have statistically significant impacts on European banks’ profitability. However, the effects are not uniform across profitability measures. Regression findings reveal that size and capital ratio are significant company-level determinants of bank profitability in Europe, while higher loan loss provisions result in lower profitability levels. Findings also suggest that banks with higher deposits and loans ratio tend to be more profitable but the effects on profitability are statistically insignificant in some cases. Practical implications This study has considerable policy implications, as the performance of the European banking sector depends on its efficiency, profitability and competitiveness. In view of these findings, some suggestions may be functional for bank regulatory authorities to intensify and sustain robustness and stability of the banking sector. Originality/value The results provide interesting insights into the characteristics and practices of profitable banks in Europe. Few econometric studies have empirically explored the determinants of bank profitability in Europe so far, even though similar studies have been conducted in several developed countries. Therefore, this paper tries to close an important gap in the existing literature improving the understanding of bank profitability in Europe.

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