Understanding the effects of banking profitability in Pakistan

2021 ◽  
pp. 2150003
Author(s):  
Tanzeela Yaqoob ◽  
Zara Omer ◽  
Samreen Fatima
Keyword(s):  
Panel Data ◽  
Credit Risk ◽  
Random Effect ◽  
Negative Relationship ◽  
Credit Risk Management ◽  
Return On Assets ◽  
Public And Private ◽  
Public And Private Sector ◽  
Time Invariant ◽  
Yearly Data

The purpose of this study is to investigate the bank specific determinants related to the performance of public and private sector banks in Pakistan. Using strongly balanced panel yearly data from 2010 to 2017, Pooled OLS, fixed effect, Random effect and Random Effect Mundlak Transformation (REMT) have been utilized to provide the empirical evidences in credit risk management in Pakistan. The identification of suitable explanatory variable that explains the banking profitability wisely is made possible by using the panel data techniques. In this study, impact of bank specific variables are: Return On Assets, Capital Ratio, Credit Risk, Credit deposit ratio, Liquidity Ratio, Interest expended to interest earned, bank size and ownership on the profitability of banks in Pakistan has been assessed using four different panel data techniques. Out of the four estimation strategies Random Effect with Mundlak (1978) transformation raises the overall variation of the baseline model to 63% that is explained by banking profitability. Ignoring the time-invariant characteristics in the model, credit deposit ratio and interest expanded to interest earned possess negative relationship with return on assets of banks. Size of the bank is positive and significant when with-in and between banks information is augmented in Radom effect method of estimation. However the size of banks may not affect the banking profitability by allowing correlation between unobservable heterogeneity using Random Effect with Mundlak (1978) transformation.

Impact Assessment Study of NPAs and Rate of Recovery: Are Private Sector Banks in India Better off?

2021 ◽  
pp. 097215092098030
Author(s):  
Richa Verma Bajaj ◽  
Gargi Sanati ◽  
Chetan Lodha
Keyword(s):  
Private Sector ◽  
Negative Relationship ◽  
Dynamic Panel ◽  
Public And Private ◽  
Basel Committee ◽  
Assessment Study ◽  
Gdp Growth Rate ◽  
Net Interest Margin ◽  
Rate Of Recovery ◽  
Public And Private Sector

Our study significantly contributes in understanding a comparative framework and the interactions of idiosyncratic and systematic factors for determining non-performing assets (NPA) and rate of recovery for banks in India, as put forward by Basel committee. Although determinants of NPA is very well debated issue, the comparison of public and private sector banks in terms of their assets quality i.e. NPAs and rate of recovery and their determinants like collateral, operational inefficiency, GDP growth rate etc. are the added contribition of this study. We have employed Arrelano–Bond dynamic panel method on 35 banks in India for the period 1998–1999 to 2017–2018 for determinants of NPAs, while determinants of rate of recovery are studied for the period 2003–2004 to 2017–2018. Our findings show that the priority sector loan has significant differences in determining NPA across banks despite them having sufficient collateral. The negative relationship between collateral and recovery, especially for private sector banks, signifies low recovery for illliquid collateral. This study may recommend that a bank with high net interest margin (NIM), high proportion of secured and liquid collateral, and sufficient mix of long- and short-duration loans in line with bank’s asset liability policy can manage their portfolio well.

scholarly journals Credit Management and Issues of Bad Debts: An Empirical Study of Listed Deposit Banks in Nigeria

2020 ◽  
pp. 32-49
Author(s):  
Peter E. Ayunku ◽  
Akwarandu Uzochukwu
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Random Effect ◽  
Credit Risk Management ◽  
Loan Loss ◽  
Data Set ◽  
Credit Management ◽  
Loan Loss Provision ◽  
The Impact

This study examines the impact of credit management on firm performance amidst bad debts, among Nigerian deposit banks. Five hypotheses were formulated following the dependent variables of Return on Asset and Tobin Q. The independent variables employed for this study include: Loan Loss Provision, Loan to Deposit Ratio, Equity to Asset Ratio, and Loan Write off. This study is based on ex-post facto research design and employed a panel data set collected from fourteen (14) commercial banks over six years ranging from 2014 to 2019 financial year. We analyzed the data set using descriptive statistics, correlation and Ordinary Least Square Regression Technique. The random effect models established that non-performing loan, loan loss provision and equity to asset impact significantly on banks’ performance in both Return on Asset and Tobin-Q models. This suggests that the sampled banks need to establish efficient arrangements to deal with credit risk management. In all, credit risk management indicators considered in this research are important variables in explaining the profitability of Nigerian commercial banks. However, based on the outcome from the empirical analysis, the study carefully recommends that investors and shareholders in these banks should be aware of the possible use of provisions for losses on non-performing loans by managers for smoothening of profits. The shareholders specifically should be ready to meet optimal agency costs to reduce the manager's information asymmetry by hiring competent internal and external auditors.

scholarly journals Bad Loans of Public Sector Banks in India: A Panel Data Study

2019 ◽  
Vol 5 (1) ◽  
pp. 22-30
Author(s):  
Kandela Ramesh
Keyword(s):  
Public Sector ◽  
Panel Data ◽  
Financial Stability ◽  
Random Effect ◽  
Random Effect Model ◽  
Negative Relationship ◽  
Banking System ◽  
Capital Adequacy ◽  
Public Sector Banks ◽  
Bad Loans

The soundness of the banking system is necessary for economic advancement and financial stability. In the contemporary era, the Indian banking system has suffered from the accumulation of substantial non-performing assets (NPAs), especially in the public sector banks (PSBs). This article examines the financial determinants of bad loans in the Indian PSBs with the help of panel data regression analysis. Panel dataset of 21 Indian PSBs for eight years from 2010 to 2017 is used for the study. For analysis, net non-performing assets (NNPAs) as a dependent variable and financial indicators as independent variable are used. Using the random effect model, it is found that credit–deposit ratio, loan maturity, and return on assets have a negative relationship with NNPAs. These factors have an association with a lower level of NPAs. Operating expenses and capital adequacy ratio have an insignificant effect on NNPAs. On the other hand, factors such as priority sector loans, collateral values, and non-interest income have a positive impact on NNPAs. These factors are an indication of a higher level of bad loans and are adding to the accumulation of NPAs in PSBs.

scholarly journals Risk management and profitability of commercial banks of Western Balkans countries of Kosovo, Albania, North Macedonia, and Serbia

2021 ◽  
Vol 8 (1) ◽  
pp. 81-88
Author(s):  
Sevdie Alshiqi ◽  
Arbana Sahiti
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Statistical Significance ◽  
Significant Activity ◽  
Western Balkans ◽  
Credit Risk Management ◽  
Return On Assets ◽  
Positive Dependence ◽  
Return On Equity

Due to their importance, commercial banks currently play a very important role in national financial systems. The profitability of commercial banks depends on how they manage their loans, and credit risk management is thus crucial in the banking system, risk management is significant activity of commercial bank. The main purpose of this study is to observe the extent to which bank profitability is dependent on credit risk management, with a focus on commercial banks in the Western Balkans (Kosovo, Albania, North Macedonia and Serbia). The results reveal a certain assured correlation among credit risk as well as the profitability of banks, where the ratio of non-performing loans (NLPR) has a positive effect on return on equity (ROE) and return on assets (ROA). Capital Insufficiency (CAR) shows that positive dependence is without any statistical significance on return on equity (ROE) and return on assets (ROA).  

scholarly journals INFLUENCE OF RISK ASSETS IMPAIRMENT ON PERFORMANCE OF NIGERIAN LISTED DEPOSIT MONEY BANKS

2020 ◽  
Vol 5 (3) ◽  
pp. 41-63
Author(s):  
Adewale Joel Adebisi ◽  
Adeyemi Wasiu Alabi ◽  
Kolawole Fatimehin
Keyword(s):  
Gross Domestic Product ◽  
Negative Impact ◽  
Positive Impact ◽  
Random Effect ◽  
Negative Relationship ◽  
Secondary Data ◽  
Negative Influence ◽  
Domestic Product ◽  
Return On Assets ◽  
Operating Profit

Profitability is critical to the survival of Nigerian deposit money banks which is consistently been eroded by the impaired risk assets. Hence, this study was conducted to examine influence of risk assets impairment on performance of Nigerian deposit money banks. The specific objectives of the study were to; (i) determine the effect of impairment loss on operating profit; (ii) analyze effect non-performing loans ratio affect return on assets of Nigerian deposit money banks. Secondary data were collected and analysed using fixed and random effect regression analysis methods from a sample of 14 listed Nigerian deposit money banks. The study revealed that impairment loss, have significant negative relationship with operating profit (β=2.294, p‹ 0.01) and non-performing loan ratio have significant positive relationship with return on assets (β=0.067, p‹ 0.1). However, other variables such as inflation, liquidity and gross domestic product per capital also have effect on banks performance. The study concluded that risk assets impairment has significant negative influence on performance and that inflation, liquidity and gross domestic product have negative impact on profitability, while bank size has positive impact on profitability. The study recommended that; bank directors should put effective risk assets impairment test in place to boost reported profitability; the bank management should ensure effective management of liquidity ratio to boost return on equity; government policymakers should ensure that banks are mandated to disclose their risk assets impairment and expand their size by extending banking services to the unbanked areas.

scholarly journals Liquidity Risk and Bank Performance: An Empirical Test for Tunisian Banks

2017 ◽  
Vol 7 (1) ◽  
pp. 46 ◽  
Author(s):  
Abdelaziz Hakimi ◽  
Khemais Zaghdoudi
Keyword(s):  
Panel Data ◽  
Financial Crisis ◽  
Credit Risk ◽  
Empirical Test ◽  
Random Effect ◽  
Liquidity Risk ◽  
Bank Performance ◽  
International Financial Crisis ◽  
Effect Regression ◽  
The Relationship

An important part of banking literature was interested in the relationship between credit risk and bank performance. However, only few studies investigated the association between liquidity risk and bank performance. The aim of this paper is to study the effect of liquidity risk on the Tunisian bank performance. To this end, we used a sample of 10 Tunisian banks over the period 1990-2013. By applying panel data method, precisely random effect regression, results show that liquidity risk decreases significantly Tunisian bank performance. Also, findings indicate that international financial crisis and inflation act negatively and significantly on bank performance.

scholarly journals Credit Risk Management and Sub-Standard Loans of Commercial Banks in Nigeria: A Panel Data Analysis

2021 ◽  
Vol 2 (3) ◽  
pp. 169-190
Author(s):  
Anele Andrew Nwosi ◽  
Akani Elfreda Nwakaego
Keyword(s):  
Risk Management ◽  
Panel Data ◽  
Credit Risk ◽  
Commercial Banks ◽  
Fixed Effects ◽  
Bank Risk ◽  
Credit Risk Management ◽  
Loan Portfolio ◽  
Risk Diversification ◽  
Risk Transfer

This study examined the effect of credit risk management on sub-standard loan portfolio of quoted commercial banks in Nigeria. Cross sectional data was sourced from financial statement of commercial banks and Central Bank of Nigeria Statistical bulletin from 2009-2018. Sub-standard portfolio was used as dependent variable while bank risk diversification, Basel risk compliance, risk transfer were used as independent variables. Panel data methodology was employed while the fixed effects model was used as estimation technique at 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit. Panel unit roots and panel cointegration analysis were conducted on the study.   The empirical results proved that 41.7 per cent variations in the sub-sub-standard loans’ portfolio   was explained by credit risk management. From the random effect results, bank risk transfer and Basel compliance have positive relationship with sub-standard loan portfolio while risk bank risk diversification have negative relationship with sub-stand ad loan portfolio of the commercial banks.  We recommend that management of the commercial banks should be pro-active and devise effective measures of managing credit risk to reduce the incidence of sub-standard loans.  The monetary authority should monitor the Basel compliance rate and policies of the commercial banks to credit risk management

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