Determining Risk Factors that Diminish Asset Quality of Indian Commercial Banks

2019 ◽  
pp. 097215091986147 ◽  
Author(s):  
Onkar Shivraj Swami ◽  
B. Nethaji ◽  
Jyoti Prakash Sharma
Keyword(s):  
Risk Factors ◽  
Commercial Banks ◽  
Managerial Efficiency ◽  
Quality Review ◽  
Reserve Bank ◽  
Review Period ◽  
Asset Quality ◽  
Diversified Portfolio ◽  
Reserve Bank Of India

Controlling higher level of non-performing loans (NPLs) has become one of the key objectives of the Reserve Bank of India (RBI), as it may impact banking and macroeconomic stability adversely. In this respect, the present study tries to determine risk factors that diminish asset quality of Indian commercial banks in and around the asset quality review period. Pooled and panel logit model has been employed to examine the determinants of NPLs. We find that banks with lower level of capital, reduced profitability, less diversified portfolio, poor operating and managerial efficiency are at greater risk of having diminished asset quality, whereas the size of the bank is positively linked with the higher level of NPAs. In general, empirical analysis proposes that to identify the bank whose asset quality is likely to deteriorate well in advance, the Regulatory and Supervisory Department of the Central Bank may consider lower level of capital, deteriorating profitability and poor operational efficiency as a leading indicator.

YES Bank Fiasco: Arrogance or Negligence

2021 ◽  
Vol 3 (2) ◽  
pp. 95-102
Author(s):  
Shakeb Akhtar ◽  
Mahfooz Alam ◽  
Mohd Mohsin Khan
Keyword(s):  
Capital Structure ◽  
Private Bank ◽  
Quality Review ◽  
Bank Management ◽  
Reserve Bank ◽  
The Subject ◽  
Asset Quality ◽  
Present Case Study ◽  
Reserve Bank Of India

The present case study is based on the nation’s biggest-ever banking failure of India’s fastest-growing private bank, YES Bank. The YES Bank fiasco showcases the prevalent flaws of uprising NPAs and mounting bad debts in the financial sector. Post Asset Quality Review (AQR) conducted by RBI elucidate that the NPA of YES Bank is seven times higher than the actual reported amount in their audit book. The sudden trauma reflected the events unfolding in the bank as the share market plummets drastically and the losses enlarged exponentially. To stymie further deterioration, the Reserve Bank of India (RBI) stepped in and took over YES Bank management. The economy is already set to decelerate to an 11-year low following demonetization and the outbreak threatens to delay a revival in an emerging economy like India. The subject that this case will fit in is Capital Structure, Corporate Governance and Ethics and Auditing.

A comparative performance evaluation of banking industry in Bangladesh: CAMEL rating approach

2021 ◽  
Vol 08 (01) ◽  
pp. 2050052
Author(s):  
Md. Rostam Ali ◽  
Md. Rakibuzzaman Ratul ◽  
Rushafa Tasnim Tisha ◽  
Md. Ashikul Islam
Keyword(s):  
Commercial Banks ◽  
The Other ◽  
Comparative Performance ◽  
Other Hand ◽  
Rank 2 ◽  
Composite Rating ◽  
Earning Quality ◽  
Asset Quality ◽  
Rating Model

This study is an attempt to evaluate and compare the performance of State-Owned Commercial Banks (SOCBs) and Private Commercial Banks (PCBs) of Bangladesh. CAMEL rating model has been applied to confess where a bank can be successful and where it has weaknesses. Data have been collected from four SOCBs and eight PCBs for the years 2014–2017. Among the selected SOCBs, it is found that Agrani Bank holds “Satisfactory” position where Sonali Bank holds “Fair” position through the year 2014–2017. On the other hand, Janata bank has improved its position from “Fair” to “Satisfactory” for the year 2016 and 2017. Moreover, Rupali Bank holds ‘Satisfactory’ position only for the year 2017 where this position was “Fair” for the year 2014–2016. On the other hand, it is found that all the selected PCBs hold “Satisfactory” position through the year 2014–2017. Though the composite rating for both types of banks (SOCBs and PCBs) is in “Satisfactory level”, Rank-1 is given to PCBs and Rank-2 is given to SOCBs. CAMEL ratio for “Asset quality” for both types of banks (SOCBs and PCBs) are showing “Dissatisfactory level”. “Earning quality” of SOCBs is showing at a “Marginal level”. Therefore, proper attention should be given to manage the “Asset quality” and SOCBs should increase the “Earning quality”.

The Distressing Effect of Non-Performing Assets to Asset Quality for Commercial Banks in Kenya

2018 ◽  
Vol 3 (6) ◽  
pp. 71-83
Author(s):  
Fred Sporta
Keyword(s):  
Financial Distress ◽  
Commercial Banks ◽  
Secondary Data ◽  
Capital Adequacy ◽  
Risk Level ◽  
Loan Loss ◽  
Risk Levels ◽  
Distress Risk ◽  
Asset Quality

Non-performing Assets is a ratio necessary when identifying financial distress effect on asset quality of financial institutions in Kenya specifically commercial banks in Kenya. Financial distress and asset quality have often been discussed separately in details, but not as satisfactorily this is because of its role of asset quality on distress risk levels of commercial banks. The current research established the distressing effect of non-performing assets on asset quality of Kenyan commercial banks. Nonloan ratio was represented by two variables: Non-performing assets to total loans ratio and Loan loss provision ratio. Thirty-eight Kenyan commercial banks were used for analysis for an eleven year period (2005-2015). Financial statements of commercial banks from CBK was used to extract secondary data for analysis. Results indicated that there a relationship between financial performance and capital adequacy regarding financial distress risk level. A correlation and panel regression analyses were carried out mainly to determine whether there was a relationship of non-performing assets and asset quality of commercial banks in Kenya, the outcome of the study indicated a positive relationship between Non-performing assets and asset quality. This study specifically gives a mindful and sense of reference to the depositor, all banking institutions including the commercial banks and policy-makers to high standards of asset quality by ensuring proper additional guidelines and controls are put in place to guard against non-performing loans.

Performance of banking industry in Bangladesh: Insights of CAMEL rating

2017 ◽  
Vol 04 (02n03) ◽  
pp. 1750006 ◽  
Author(s):  
Syed Moudud-Ul-Huq
Keyword(s):  
Financial Performance ◽  
Commercial Banks ◽  
Banking Sector ◽  
Banking Industry ◽  
Rating System ◽  
Managerial Ability ◽  
Strategic Plans ◽  
Composite Rating ◽  
Asset Quality

This study attempts primarily to measure the financial performance of banking industry of Bangladesh for the periods 2013–2014 and to rate them according to the composite rating system. For this purpose, 10 private commercial banks (PCBs) have been selected from 38 PCBs. CAMEL has critically analyzed the financial performance of these banks. This finds that most of the banks get 2.14 with an average rating of composite range, where only Eastern Bank Ltd. gets “Strong” rating, seven PCBs get “Satisfactory” rating, AB Bank Ltd. and City Bank Ltd. lay middle of the range of composite score. From this ground, it is clearly reflected that most of the PCBs in Bangladesh have performed quite satisfactorily in recent years. The performance of most banks is dependent more on the managerial ability in formulating strategic plans and the efficient implementation of its strategies. Maintenance of asset quality is the major challenge in this year and is feared to remain so in 2014. The banking sector in Bangladesh has passed somewhat an average year regarding governance, profitability and soundness in 2013. Finally, it is recommended that the banks should be more careful to ensure the quality of assets and its uses, and increased their efficiency in managerial grids.

scholarly journals The Identification of Green Banking Concept and Bank Liability (A Study of Act Number 10 of 1998 with Extensive Interpretation and Progressive Legal Approach)

2018 ◽  
Vol 2 (1) ◽  
pp. 1-16
Author(s):  
Anitalia Kusumadewi ◽  
Paripurna Paripurna
Keyword(s):  
Financial Services ◽  
Commercial Banks ◽  
Deep Insight ◽  
Legal Research ◽  
Public Companies ◽  
Applicable Law ◽  
Sustainable Finance ◽  
Lender Liability ◽  
Asset Quality

The purposes of this research are to analyze the identification of Green Banking concept in the Act Number 10 of 1998 with extensive interpretation and progressive legal approach and to analyze how banks should be held liable for based on applicable law in view of the extensive interpretation and progressive legal approach. This research is a normative legal research that has analyzed Green Banking concept using Act Number 10 of 1998 concerning Banking, Bank Indonesia Regulation Number 14/15/PBI/2012 concerning Asset Quality of Commercial Banks, Act Number 32 of 2009 concerning Environmental Protection and Management and the Financial Services Authority Regulation Number 51/POJK.03/2017 concerning the Application of Sustainable Finance for Financial Services Institutions, Issuer Companies and Public Companies, and then presented as prescriptive research. The result of this study is that banks are reluctant to further examine the AMDAL of financed projects and do not oversee such projects until the termination of the contract. Extensive interpretation and progressive legal approach can be used to provide bank a deep insight regarding the concept of green banking contained in the banking law and the extent to which banks (creditors) are subject to the terms of the lender liability.

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 Determinants of Credit Infections: Evidence from Banking Sector in an Emerging Economy

2018 ◽  
Vol 6 (2) ◽  
pp. 47-62
Author(s):  
Ayesha Afzal ◽  
Nawazish Mirza ◽  
Azka Mir
Keyword(s):  
Commercial Banks ◽  
Banking Sector ◽  
Dynamic Panel ◽  
Macroeconomic Variables ◽  
Lending Institution ◽  
Lending Rates ◽  
Asset Quality ◽  
Panel Estimates ◽  
The Empirical Analysis

This paper applies dynamic panel estimates on 22 commercial banks in Pakistan to determine the factors that affect their asset quality. Consequently, the study tests for a comprehensive array of both bank-specific and macroeconomic variables collected quarterly from 2008 to 2016. The empirical analysis confirms that bad asset quality can be explained by retarded GDP growth and unfavorable movement in exchange and lending rates. Within the bank-specific variables, non-performing loans are the most responsive to loans to the agriculture and energy sectors, level of capitalization, size of the lending institution and quality of management.

scholarly journals Evaluation of the Financial Performance between Traditional Private Commercial Banks and Islamic Banks in Bangladesh

2020 ◽  
Vol 4 (2) ◽  
pp. 1-10
Author(s):  
S. M. Akber ◽  
Asha Dey
Keyword(s):  
Financial Performance ◽  
Commercial Banks ◽  
Standard Test ◽  
Capital Adequacy ◽  
Islamic Banks ◽  
Test Format ◽  
Average Ratio ◽  
Significant Difference ◽  
Asset Quality

The paper analyzes and evaluated the performance of Islamic banks and Traditional private commercial banks in Bangladesh with a duration from 2015 to 2019. The basis of the analysis used in this paper is CAMEL test.  All the relevant data has collected from the bank’s websites. To measure and compare the performance this paper has used a sample of five Islamic banks and five Traditional private commercial banks. It considered the average ratio of each year.  A standard test format (CAMEL tests) has used to analyze the performance of Islamic and Traditional private commercial banks. To justify the reliability of the data this paper has used t-tests. The outcome of this paper says that apart from the quality of the management significant difference doesn’t exist between the performance of Islamic Banks and Traditional private commercial banks in Bangladesh based on CAMEL test. Considering the quality of the management and asset quality Traditional private commercial banks perform better, but for the capital adequacy and liquidity position Islamic banks perform better in Bangladesh.

scholarly journals Credit Information and Asset Quality of Commercial Banks in Nakuru Town, Kenya

2019 ◽  
Vol 3 (II) ◽  
pp. 199-211
Author(s):  
John Kinyati Kaigu ◽  
Joseph Theuri
Keyword(s):  
Commercial Banks ◽  
Identity Verification ◽  
Collateral Information ◽  
Consumer Identity ◽  
Consumer Default ◽  
Unit Increase ◽  
Positive Variation ◽  
Status Information ◽  
Asset Quality

The study sought to establish the effect of credit information on the asset quality of commercial banks in Nakuru Town, Kenya. The specific objectives of the study are to determine the effect of collateral information on asset quality of commercial banks in Nakuru Town, Kenya, to determine the effect of business ratings information on the asset quality of commercial banks in Nakuru Town, Kenya, to determine the effect of consumer identity verification information on the asset quality of commercial banks in Nakuru Town, Kenya, to determine the effect of customers credit status information on asset quality of commercial banks in Nakuru Town, Kenya and to establish the effect of consumer default information details on asset quality of commercial banks. The literature review focused on bank risk management theory, loanable funds theory, Merton’s default risk model and asymmetric information theory. Primary data was collected using questionnaires in order to get accurate results. The study used regression analysis and the findings revealed that Business Ratings and Collateral Information significantly influences up to 59.4% and 17.6% positive variation on Asset quality respectively. This implies that for every one unit increase in business ratings information asset quality increases by 59.4 % while collateral information increases asset quality increase by 17.6 %. It was also observed that consumer default information significantly influences 36.3% positive variation on asset quality. However, it was noted that Customer’s Credit Status Information significantly influences 32.5% negative variation on Asset quality. This implies that for every one unit increase in Customer’s Credit Status Information, Asset quality decreases by 32.5%. Similarly, Consumer Identity Verification Information influences negatively Asset quality by 9.3%. In this study, Business ratings information is the best predictor of asset quality. It was concluded that Collateral information, business ratings information and consumer default information influences positively asset quality. However, consumer identity verification information and customer’s credit status information influences negatively on asset quality. The study recommends that Collateral information should be controlled in order to promote positive loan performance by commercial banks as well as that business ratings information should be adequately provided in order to enhance quality assets of commercial banks. This is an open-access article published and distributed under the terms and conditions of the Creative Commons Attribution 4.0 International License of United States unless otherwise stated. Access, citation and distribution of this article is allowed with full recognition of the authors and the source.

scholarly journals Research on the Influencing Factors of Commercial Banks’ Bad Loans under the New Normal of Economy

2021 ◽  
Vol 6 (1) ◽  
pp. 411
Author(s):  
Lanyu Zhang ◽  
Yilin Zang ◽  
Chenxuan Wu
Keyword(s):  
Commercial Banks ◽  
Negative Impact ◽  
Positive Impact ◽  
New Normal ◽  
Leverage Ratio ◽  
Three Phase ◽  
Income Ratio ◽  
Asset Quality ◽  
The Cost

China is currently in a complex period of “three-phase superposition”. Under the new normal of the economy Financial deleveraging has achieved certain results. However, the non-performing loan ratio of commercial banks has shown a continuous upward trend since 2015. The empirical results show that the degree of internalization of commercial banks, credit balances, and gross domestic product have a negative impact on the NPL ratio, and the cost-to-income ratio and leverage ratio have a positive impact on the NPL ratio. Therefore, commercial banks should vigorously develop digital technology, expand the scale of credit, use technological advantages to reduce costs, establish an appropriate level of leverage, and effectively reduce the non-performing loan ratio to improve the asset quality of commercial banks.

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