An empirical analysis of bank specific factors affecting interest rate of Ugandan banking financial institutions

Purpose The purpose of this paper is to investigate the effect of bank specific factors on interest rate in banking financial institutions (BFIs) of Uganda. Design/methodology/approach To analyze the effect, an OLS random effects regression estimate on a data set of 24 banks from 2008 to 2016 from Bank of Uganda Depository Corporation survey was carried out. Studied bank specific factors including liquidity, operational efficiency, credit risk, capitalization and lending ratio are considered. Findings The results indicate that liquidity, operational efficiency, capitalization and lending out ratio affect the interest rate while credit risk does not. Research limitations/implications The study has confirmed that bank specific factors influence interest rate and other factors such as industry-level and indirect macroeconomic indicators need to be explored. The differences in categories of banks on interest rate would be of importance. Finally, this study concentrated on banks in Uganda, future study would focus on the comparison of Ugandan banks with those of other countries in the East African Region. Practical implications Bank managers should invest in up-to-date technology to reduce operational costs and improve efficiency. Managers of bank should take interest on equity mobilization, because it constitutes a cheaper source of capital to finance asset used in operations and long-term needs of borrowers financing. Government should consider a legislation that provides incentives toward savings and reduction in tax for bank inputs. Originality/value This is the first study that investigates the effect of bank specific factors on interest rate in Uganda’s BFIs.

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Pengaruh Faktor Internal Spesifik Bank Terhadap Interest Rate di Perusahaan Sektor Perbankan

Media Riset Bisnis & Manajemen ◽

10.25105/mrbm.v19i1.5364 ◽

2019 ◽

Vol 19 (1) ◽

pp. 16

Author(s):

Ilma Meidira Eprianto ◽

Catur Rahayu Martiningtiyas

Keyword(s):

Interest Rate ◽

Credit Risk ◽

Interest Rates ◽

Design Methodology ◽

Operational Efficiency ◽

Internal Factors ◽

Specific Factors ◽

The Difference ◽

The Interest Rate ◽

Positive Effect

AbstrakTujuan - Penelitian ini bertujuan untuk mengetahui pengaruh faktor spesifik internal bank terhadap interest rate.Desain/Metodologi/Pendekatan - Regresi data panel berganda yang digunakan untuk mengukur pengaruh faktor spesifik internal bank seperti liquidity, operational efficiency, credit risk, capitalization, dan lending out ratio terhadap interest rateHasil – Penelitian ini menemukan bahwa efficiency dan credit risk memiliki pengaruh positif yang signifikan terhadap interest rate sedangkan liquidity, capitalization dan lending out ratio tidak berpengaruh terhadap interest rate.Keterbatasan/Nilai – Pengukuran interest rate tidak menggunakan suku bunga sbi tetapi perhitungan selisih antara suku bunga pinjaman dan suku bunga deposito. AbstractProposed - This study aims to determine the effect of bank's specific internal factors on interest rates.Design/Methodology/Approach - Mutiple panel data was used to analyse bank internal specific factors, namely liquidity, operational efficiency, credit risk, capitalization, and lending out ratio to the interest rate.Result – The results of this study indicate that efficiency and credit risk have a significant positive effect on interest rates while liquidity but capitalization and lending out ratio do not affect the interest rateNovelty/Value - Interest rate measurement does not use the SBI interest rate but calculates the difference between the loan interest rate and the deposit rate.

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Identification of a standard AI based technique for credit risk analysis

Benchmarking An International Journal ◽

10.1108/bij-09-2014-0094 ◽

2016 ◽

Vol 23 (5) ◽

pp. 1381-1390 ◽

Cited By ~ 5

Author(s):

M. Punniyamoorthy ◽

P. Sridevi

Keyword(s):

Neural Network ◽

Risk Assessment ◽

Credit Risk ◽

Financial Institutions ◽

Support Vector ◽

Data Set ◽

Content Type ◽

Machine Learning Classification ◽

Credit Risk Assessment ◽

Data Points

Purpose – Credit risk assessment has gained importance in recent years due to global financial crisis and credit crunch. Financial institutions therefore seek the support of credit rating agencies to predict the ability of creditors to meet financial persuasions. The purpose of this paper is to construct neural network (NN) and fuzzy support vector machine (FSVM) classifiers to discriminate good creditors from bad ones and identify a best classifier for credit risk assessment. Design/methodology/approach – This study uses artificial neural network, the most popular AI technique used in the field of financial applications for classification and prediction and the new machine learning classification algorithm, FSVM to differentiate good creditors from bad. As membership value on data points influence the classification problem, this paper presents the new FSVM model. The instances membership is computed using fuzzy c-means by evolving a new membership. The FSVM model is also tested on different kernels and compared and the classifier with highest classification accuracy for a kernel is identified. Findings – The paper identifies a standard AI model by comparing the performances of the NN model and FSVM model for a credit risk data set. This work proves that that FSVM model performs better than back propagation-neural network. Practical implications – The proposed model can be used by financial institutions to accurately assess the credit risk pattern of customers and make better decisions. Originality/value – This paper has developed a new membership for data points and has proposed a new FCM-based FSVM model for more accurate predictions.

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The effect of credit risk management and bank-specific factors on the financial performance of the South Asian commercial banks

Asian Journal of Accounting Research ◽

10.1108/ajar-08-2020-0071 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Asima Siddique ◽

Muhammad Asif Khan ◽

Zeeshan Khan

Keyword(s):

Risk Management ◽

Credit Risk ◽

Financial Performance ◽

South Asian ◽

Commercial Banks ◽

Capital Adequacy ◽

Credit Risk Management ◽

Content Type ◽

Specific Factors ◽

Bank Specific Factors

PurposeAmong all of the world's continents, Asia is the most important continent and contributes 60% of world growth but facing the serving issue of high nonperforming loans (NPLs). Therefore, the current study aims to capture the effect of credit risk management and bank-specific factors on South Asian commercial banks' financial performance (FP). The credit risk measures used in this study were NPLs and capital adequacy ratio (CAR), while cost-efficiency ratio (CER), average lending rate (ALR) and liquidity ratio (LR) were used as bank-specific factors. On the other hand, return on equity (ROE) and return on the asset (ROA) were taken as a measure of FP.Design/methodology/approachSecondary data were collected from 19 commercial banks (10 commercial banks from Pakistan and 9 commercial banks from India) in the country for a period of 10 years from 2009 to 2018. The generalized method of moment (GMM) is used for the coefficient estimation to overcome the effects of some endogenous variables.FindingsThe results indicated that NPLs, CER and LR have significantly negatively related to FP (ROA and ROE), while CAR and ALR have significantly positively related to the FP of the Asian commercial banks.Practical implicationsThe current study result recommends that policymakers of Asian countries should create a strong financial environment by implementing that monetary policy that stimulates interest rates in this way that automatically helps to lower down the high ratio of NPLs (tied monitoring system). Liquidity position should be well maintained so that even in a high competition environment, the commercial is able to survive in that environment.Originality/valueThe present paper contributes to the prevailing literature that this is a comparison study between developed and developing countries of Asia that is a unique comparison because the study targets only one region and then on the basis of income, the results of this study are compared. Moreover, the contribution of the study is to include some accounting-based measures and market-based measures of the FP of commercial banks at a time.

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Determinants of Liquidity Considering Role of Market Competition; Evidence from Pakistan’s Banking Sector

Sustainable Business and Society in Emerging Economies ◽

10.26710/sbsee.v2i2.1617 ◽

2020 ◽

Vol 2 (2) ◽

pp. 51-59

Author(s):

Amir Rafique ◽

Muhammad Adeel ◽

Kalsoom Akhtar ◽

Muhammad Amir Alvi

Keyword(s):

Credit Risk ◽

Banking Sector ◽

Panel Data Analysis ◽

Market Competition ◽

Data Set ◽

Macroeconomic Factors ◽

Negative Effect ◽

Specific Factors ◽

Bank Specific Factors

Current study empirically analyzes bank specific factors and macroeconomic factors that determine the liquidity reserves of banks functioning in Pakistan. To highlight the association, current study performed random effects estimates on a data set of 20 banks from 2006 to 2016. Bank specific factors include bank size, capital and credit Risk. GDP and Inflation are the macroeconomic factors that were considered. Market competition has been measured through HHI. Based on panel data analysis, current study suggests that bank specific factors (except capital), macroeconomic factors and market competition significantly affect liquidity reserves of banks in Pakistan. These factors include bank size, credit risk, market competition, GDP and inflation. In addition, bank size, credit risk, GDP and Inflation revealed a negative effect on bank liquidity. On the other hand, market competition revealed a positive effect on bank liquidity. Capital showed an insignificant effect on bank liquidity.

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Financial institutions mergers: a strategy choice of wealth maximisation and economic value

Journal of Financial Economic Policy ◽

10.1108/jfep-06-2019-0113 ◽

2020 ◽

Vol 12 (4) ◽

pp. 495-529

Author(s):

Mohamad Hassan ◽

Evangelos Giouvris

Keyword(s):

Credit Risk ◽

Event Study ◽

Financial Institutions ◽

Value Creation ◽

Economic Value ◽

Abnormal Returns ◽

Study Analysis ◽

Event Window ◽

Content Type ◽

Merger Announcement

Purpose This study Investigates Shareholders' value adjustment in response to financial institutions (FIs) merger announcements in the immediate event window and in the extended event window. This study also investigates accounting measures performance, comparison of post-merger to pre-merger, including several cash flow measures and not just profitability measures, as the empirical literature review suggests. Finally, the authors examine FIs mergers orientations of diversification and focus create more value for shareholders (in the immediate announcement window and several months afterward) and/or generates better cash flows, profitability and less credit risk. Design/methodology/approach This study examines FIs merger effect on bidders’ shareholder’s value and on their observed performance. This examination deploys three techniques simultaneously: a) an event study analysis, to estimate and calculate abnormal returns (ARs) and cumulative abnormal returns (CARs) in the narrow windows of the merger announcement, b) buy and hold event study analysis, to estimate ARs in the wider window of the event, +50 to +230 days after the merger announcement and c) an observed performance analysis, of financial and capital efficiency measures before and after the merger announcement; return on equity, liquidity, cost to income ratio, capital to total assets ratio, net loans to total loans, credit risk, loans to deposits ratio, other expenses and total assets, economic value addition, weighted average cost of capital and return on invested capital. Deal criteria of value, mega-deals, strategic orientation (as in Ansoff (1980) growth strategies), acquiring bank size and payment method are set as individually as control variables. Findings Results show that FIs mergers destroy share value for the bidding firms pursuing a market penetration strategy. Market development and product development strategies enable shareholders’ value creation in short and long horizons. Diversification strategies do not influence bidding shareholders’ value. Local bank to bank mergers create shareholders’ value and enhance liquidity and economic value in the short run. Bank to bank cross border mergers create value for bidders’ in the long term but are associated with high costs and higher risks. Originality/value A significant advancement over the current literature is in assessing mergers, not only for bank bidders but also for the three pillars FIs of the financial sector; banks, real-estate companies and investment companies mergers. It is an improvement over current finance literature because it deploys two different strategies in the analysis. At a univariate level, shareholder value creation and market reaction to merger announcements are examined over short (−5 or +5 days) and long (+230 days) windows of the event. Followed by regressing, the resultant CARs and BHARs over financial performance variables at the multivariate level.

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Modeling debt choice in agriculture: the effect of endogenous asset values

Agricultural Finance Review ◽

10.1108/afr-06-2016-0054 ◽

2017 ◽

Vol 77 (1) ◽

pp. 95-110 ◽

Cited By ~ 2

Author(s):

Maria Bampasidou ◽

Ashok K. Mishra ◽

Charles B. Moss

Keyword(s):

Panel Data ◽

Interest Rate ◽

Agricultural Sector ◽

Macroeconomic Policy ◽

Rate Of Return ◽

Data Set ◽

Content Type ◽

Asset Values ◽

The Usa ◽

Non Parametric

Purpose The purpose of this paper is to investigate the endogeneity of asset values and how it relates to farm financial stress in US agriculture. The authors conceptualize an implied measure of farm financial stress as a function of debt position. The authors posit that there are variations in the asset values that are beyond the farmer’s control and therefore have implications on farm debt. Design/methodology/approach The framework recognizes the endogeneity of return on assets (ROA). It uses a non-parametric technique to approximate the variance of expected ROA (VEROA). The authors model the rate of return on agricultural assets and interest rate with a formulation that focuses on macroeconomic policy. Further, the authors use a dynamic balanced panel data set from 1960 to 2011 for 15 US agricultural states from the Agricultural Resource Management Survey, and information from traditional state-level financial statements. Findings Estimation of linear dynamic debt panel data models accounting for the endogeneity of ROA and VEROA is a challenging task. Estimated variances are unstable. Hence, the authors focus on variance specification that uses the residuals squared from the ARIMA specification and non-parametric estimators. Arellano-Bover/Blundell-Bond generalized method of moments estimation procedures, although may be biased, show that VEROA has a negative and significant effect on the total amount of debt in the agricultural sector. Research limitations/implications The instruments used in this analysis are lagged regressors which may be weakly correlated with the relevant first-order condition, hence not properly identifying the parameters of interest. Future research could include the identification of better instruments, potentially use of sequential moment conditions. Originality/value Unlike previous study, the authors use non-parametric approximation of VEROA. The authors model the rate of return on agricultural assets and interest rate with a formulation that focuses on macroeconomic policy. Second, the authors make use of a large dynamic balanced panel data set from 1960 to 2011 for 15 agricultural states in the USA. To the best of the authors’ knowledge, this study is one of the few that provides evidence on risk-balancing behavior at the agricultural sector level, of the USA.

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

Journal of Financial Economic Policy ◽

10.1108/jfep-05-2018-0074 ◽

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.

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How loan interest rate liberalization affects firms’ loan maturity structure

China Finance Review International ◽

10.1108/cfri-06-2013-0078 ◽

2014 ◽

Vol 4 (2) ◽

pp. 153-167 ◽

Cited By ~ 3

Author(s):

Jianfang Zhou ◽

Jingjing Wang ◽

Jianping Ding

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Manufacturing Companies ◽

Short Term ◽

Data Set ◽

Content Type ◽

Interest Rate Liberalization ◽

Upper Limit ◽

Maturity Structure

Purpose – After loan interest rate upper limit deregulation in October 2004, the financing environment in China changed dramatically, and the banks were eligible for risk compensation. The purpose of this paper is to focus on the influence of the loan interest rate liberalization on firms’ loan maturity structure. Design/methodology/approach – Based on Rajan's (1992) model, the authors constructed a trade-off model of how the banks choose long-term and short-term loans scales, and further analyzed banks’ loan term decisions under the loan interest rate upper limit deregulation or collateral cases. Then the authors used an unbalanced panel data set of 586 Chinese listed manufacturing companies and 9,376 observations during the period 1996-2011 to testify the theoretical conclusion. Furthermore, the authors studied the effect on firms with different characteristics of ownership or scale. Findings – The results show that the loan interest rate liberalization significantly decreases the private companies’ reliance on short-term loans and increases sensitivity to interest rates of state-owned companies’ long-term loans. But the results also show that the companies’ ownership still plays a key role on the long-term loans availability. When monetary policy tightened, small companies still have to borrow short-term loans for long-term purposes. As the bank industry is still dominated by state-owned banks and the deposit interest rate has upper limits, the effect of the loan interest rate liberalization on easing long-term credit constraints is limited. Originality/value – From a new perspective, the content and findings of this paper contribute to the study of the effect of the interest rate liberalization on China economy.

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Does national culture influence management's accounting behaviour and strategy? – an empirical analysis of European IFRS adopters

Cross Cultural & Strategic Management ◽

10.1108/ccsm-04-2019-0088 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Lucas Reisch

Keyword(s):

Organizational Behavior ◽

National Culture ◽

Cultural Influences ◽

Cultural Dimensions ◽

Institutional Setting ◽

Data Set ◽

Content Type ◽

Legal Enforcement ◽

Specific Factors ◽

Strategy Variables

PurposeThis study examines, in a European context, whether a management-induced International Financial Reporting Standards (IFRS) accounting strategy is affected by national culture. It analyses the association between management's accounting strategy and Hofstede's cultural dimensions of individualism and uncertainty avoidance, as well as institutional and firm-specific factors.Design/methodology/approachUsing hand-collected accounting decisions from 301 annual reports of firms from 14 European countries in 2017, a model is developed to identify two ordinally scaled accounting strategy variables, each representing the aggregated effect of the decisions on earnings and equity ratio. Afterwards, the effect of the cultural dimensions on these accounting-strategy variables is analysed by an ordered logistic regression.FindingsThe results do not support an association between management's accounting strategy and national culture, complementing the previous critical literature on values-based theories of culture. However, there is evidence that national legal enforcement, disclosure requirements and firm size explain differences in management's accounting strategy across countries.Research limitations/implicationsUsing the cultural value dimensions of the Global Leadership and Organizational Behavior Effectiveness (GLOBE) project, the findings are robust and stable. However, the study is limited to a European data set and the sample year.Practical implicationsThis study contributes to the discussion on the transparency and comparability of IFRS accounting. The results imply that these issues are not affected by cultural differences but rather by differences in institutional and firm-specific factors. In order to bring about improvements, regulators should establish a uniform institutional setting, while the standard setter should reduce the number of implicit and explicit accounting choices embodied in the IFRS.Originality/valueThe paper advances the understanding of cultural influences on management's IFRS accounting behaviour by providing an alternative to the existing accruals approach.

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Determinants of loan losses of Indian Banks: a panel study

Journal of Asia Business Studies ◽

10.1108/jabs-04-2012-0017 ◽

2015 ◽

Vol 9 (1) ◽

pp. 17-32 ◽

Cited By ~ 19

Author(s):

Satyajit Dhar ◽

Avijit Bakshi

Keyword(s):

Public Sector ◽

Panel Data Analysis ◽

Capital Adequacy ◽

Content Type ◽

Specific Factors ◽

Indian Banks ◽

Loan Losses ◽

The Impact ◽

Bank Specific Factors

Purpose – The purpose of this paper is to examine the factors that influence the variability of loan losses (termed as non-performing advances or NPA in India) of Indian banks in the public sector during the period of five years from 2001 to 2005. Design/methodology/approach – The analysis is based on a panel approach, which considers both spatial and time dimensions of observations. Panel regression was used to explore the impact of different bank-specific factors on NPAs of 27 public sector banks (PSBs). Standard tests were used to find out suitability of different models of panel data analysis. Eight bank-specific factors were identified for analysis on the basis of review of extant literature. Findings – Certain bank-specific factors, in particular, net interest margin and capital adequacy ratio exhibit negative and significant impact on gross non-performing advances (GNPA) ratio of Indian PSBs. The results also suggest that relative quantum of sensitive sector (SEN) (comprised of commercial real estate, commodity and capital market) advances has a positive relationship with NPA ratio, and such a relationship is statistically significant. Research limitations/implications – The sample is restricted to India and may not be reflective of other countries. The study considers bank-level factors, and there are some macro factors (e.g. gross domestic product, interest rate and inflation rate) which could have explained the variability of GNPA ratio. Practical implications – Provisioning against loan losses is a major issue for stability of the banking system. Identification of appropriate causes of variability of such loan losses is important for managing credit portfolio of a bank. A positive and significant relationship between SEN advances and NPA calls for a more cautionary approach toward lending to those sectors. Originality/value – This paper is believed to be the first attempt to empirically examine the role of bank-specific factors. This study attempts to enrich empirical research in the field and provides an insight into the role of various bank-specific factors on loan losses in the context of Indian PSBs. The study provides contrary evidence regarding the role of priority sector advances on a GNPA ratio.

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