Sectoral Loan Portfolio Concentration and Bank Stability: Evidence from an Emerging Economy

2019 ◽  
Vol 19 (1) ◽  
pp. 66-99
Author(s):  
Baah Aye Kusi ◽  
Lydia Adzobu ◽  
Alex Kwame Abasi ◽  
Kwadjo Ansah-Adu
Keyword(s):  
Fixed Effects ◽  
Banking Sector ◽  
Expert Knowledge ◽  
Generalized Method Of Moments ◽  
Shape Effect ◽  
Loan Portfolio ◽  
Bank Stability ◽  
Long Run ◽  
Short Run ◽  
The Stability

In this study, the effect of sectoral loan portfolio concentration on bank stability is investigated in the Ghanaian banking sector between 2007 and 2014. Specifically, we investigate the linearity and non-linearity effects of sectoral loan concentration on bank stability given the limited exploration of this nexus. Employing a two-step generalized method of moments (GMM) robust random and fixed effects panel models of 30 banks, the study provides evidence showing that sectoral loan concentration weakens the stability of banks. This confirms the concentration-fragility hypothesis and the diversification theory of traditional banking but may promote bank stability beyond a certain threshold point. This implies that bank sectoral loan concentrate has a direct non-linear U-shape effect on bank stability in Ghana. We argue that although sectoral loan concentration may weaken stability of banks in the short run, it may however enhance the stability of banks in the long run through prolonged expert knowledge, experience and understanding of sectors. From these findings, policymakers, regulators and bank managers must not only develop and design policies and regulations that prohibit sectoral loan concentration but should also incorporate plans and policies that encourage banks to develop core competence and competitive advantage to take advantage of advancing bank stability through sectoral loan concentration. JEL Codes: G10; G18; G41

Economic freedom, competition and bank stability in Sub-Saharan Africa

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Emmanuel Sarpong-Kumankoma ◽  
Joshua Yindenaba Abor ◽  
Anthony Q. Q. Aboagye ◽  
Mohammed Amidu
Keyword(s):  
Economic Freedom ◽  
Banking Sector ◽  
Generalized Method Of Moments ◽  
Sub Saharan Africa ◽  
Bank Stability ◽  
Content Type ◽  
Show Evidence ◽  
Negative Effect ◽  
Sub Saharan ◽  
The Stability

PurposeThis study aims to analyze the potential implications of economic freedom and competition for bank stability.Design/methodology/approachUsing system generalized method of moments and data from 139 banks across 11 Sub-Saharan African (SSA) countries during the period 2006–2012, this study considers whether the degree of economic freedom affects the relationship between competition and bank stability.FindingsThe results show evidence of the competition-fragility hypothesis in SSA banking, but suggests that beyond a setting threshold, increases in market power may also be damaging to bank stability. Financial freedom has a negative effect on bank stability, suggesting that banks operating in environments with greater financial freedom generally tend to be less stable or more risky. The authors also find evidence of a conditional effect of economic freedom on the competition–stability relationship, implying that bank failure is more likely to occur in countries with greater economic freedom, but with low competition in the banking sector.Practical implicationsThe results suggests to policy makers that a moderate level of competition and economic freedom may be the appropriate policy to ensure the stability of banks.Originality/valueThe study provides insight on the competition–bank stability relationship, by providing new empirical evidence on the effect of economic freedom, which has not been previously considered.

scholarly journals Analysis of the New Kuznets Relationship: Considering Emissions of Carbon, Methanol, and Nitrous Oxide Greenhouse Gases—Evidence from EU Countries

2021 ◽  
Vol 18 (6) ◽  
pp. 2907
Author(s):  
Mara Madaleno ◽  
Victor Moutinho
Keyword(s):  
Nitrous Oxide ◽  
Least Squares ◽  
Fixed Effects ◽  
Ghg Emissions ◽  
Ordinary Least Squares ◽  
Kuznets Curve ◽  
Ekc Hypothesis ◽  
Long Run ◽  
Short Run ◽  
The Eu

Decreased greenhouse gas emissions (GHG) are urgently needed in view of global health threat represented by climate change. The goal of this paper is to test the validity of the Environmental Kuznets Curve (EKC) hypothesis, considering less common measures of environmental burden. For that, four different estimations are done, one considering total GHG emissions, and three more taking into account, individually, the three main GHG gases—carbon dioxide (CO2), nitrous oxide (N2O), and methane gas (CH4)—considering the oldest and most recent economies adhering to the EU27 (the EU 15 (Old Europe) and the EU 12 (New Europe)) separately. Using panel dynamic fixed effects (DFE), dynamic ordinary least squares (DOLS), and fully modified ordinary least squares (FMOLS) techniques, we validate the existence of a U-shaped relationship for all emission proxies considered, and groups of countries in the short-run. Some evidence of this effect also exists in the long-run. However, we were only able to validate the EKC hypothesis for the short-run in EU 12 under DOLS and the short and long-run using FMOLS. Confirmed is the fact that results are sensitive to models and measures adopted. Externalization of problems globally takes a longer period for national policies to correct, turning global measures harder and local environmental proxies more suitable to deeply explore the EKC hypothesis.

scholarly journals Determinants of Insurance Penetration in West African Countries: A Panel Auto Regressive Distributed Lag Approach

2021 ◽  
Vol 14 (8) ◽  
pp. 350
Author(s):  
Odunayo Olarewaju ◽  
Thabiso Msomi
Keyword(s):  
Banking Sector ◽  
West African ◽  
Education Sector ◽  
African Countries ◽  
Distributed Lag ◽  
Long Run ◽  
Short Run ◽  
Auto Regressive ◽  
Insurance Penetration ◽  
The Government

This study analyses the long- and short-term dynamics of the determinants of insurance penetration for the period 1999Q1 to 2019Q4 in 15 West African countries. The panel auto regressive distributed lag model was used on the quarterly data gathered. A cointegrating and short-run momentous connection was discovered between insurance penetration along with the independent variables, which were education, productivity, dependency, inflation and income. The error correction term’s significance and negative sign demonstrate that all variables are heading towards long-run equilibrium at a moderate speed of 56.4%. This further affirms that education, productivity, dependency, inflation and income determine insurance penetration in West Africa in the long run. In addition, the short-run causality revealed that all the pairs of regressors could jointly cause insurance penetration. The findings of this study recommend that the economy-wide policies by the government and the regulators of insurance markets in these economies should be informed by these significant factors. The restructuring of the education sector to ensure finance-related modules cut across every faculty in the higher education sector is also recommended. Furthermore, Bancassurance is also recommended to boost the easy penetration of the insurance sector using the relationship with the banking sector as a pathway.

scholarly journals Persistent Liquidity Effects and Long-Run Money Demand

2014 ◽  
Vol 6 (2) ◽  
pp. 71-107 ◽  
Author(s):  
Fernando Alvarez ◽  
Francesco Lippi
Keyword(s):  
Interest Rates ◽  
Money Demand ◽  
Asset Markets ◽  
Propagation Mechanism ◽  
Monetary Model ◽  
Long Run ◽  
Short Run ◽  
The Stability ◽  
Two Parameters

We present a monetary model with segmented asset markets that implies a persistent fall in interest rates after a once-and-for-all increase in liquidity. The gradual propagation mechanism produced by our model is novel in the literature. We provide an analytical characterization of this mechanism, showing that the magnitude of the liquidity effect on impact, and its persistence, depend on the ratio of two parameters: the long-run interest rate elasticity of money demand and the intertemporal substitution elasticity. The model simultaneously explains the short-run “instability” of money demand estimates as well as the stability of long-run interest-elastic money demand. (JEL E13, E31, E41, E43, E52, E62)

scholarly journals Political risk and banking sector performance in Nigeria

2021 ◽  
Vol 16 (3) ◽  
pp. 1-12
Author(s):  
Adefemi A. Obalade ◽  
Babatunde Lawrence ◽  
Joseph Olorunfemi Akande
Keyword(s):  
Credit Risk ◽  
Stock Price ◽  
Banking Sector ◽  
Generalized Method Of Moments ◽  
Banking System ◽  
Political Risk ◽  
Political Systems ◽  
Business Outcomes ◽  
Stage System ◽  
The Stability

Political risk is prevalent in Nigeria and tends to influence business outcomes and the stability of the banking system. As a result of this study, it was determined whether political risk matters to the performance of the banking sector in Nigeria. The effect of political risk on different banks’ performance measures, such as return on assets, return on invested capital, credit risk and stock price, were examined in a panel of 12 selected commercial banks for the period 2006–2018. Data was analyzed using a two-stage system of generalized method of moments. The results provided evidence that the effect of political risk on bank performance depends on the performance proxies. Specifically, political risk was found to be negatively related to banks’ returns on invested capital and positively related to deteriorating credit risk. Hence, it can be concluded that political risk induces poor banking system performance in Nigeria. The study provides a critical insight into the management of a country’s political systems in terms of their potential to create unfavorable conditions for banking systems to thrive.

scholarly journals Government Size and Economic Growth in Vietnam: A Panel Analysis

2014 ◽  
Vol 222 ◽  
pp. 17-39
Author(s):  
THÀNH SỬ ĐÌNH
Keyword(s):  
Economic Growth ◽  
Generalized Method Of Moments ◽  
Government Expenditure ◽  
Provincial Government ◽  
Government Size ◽  
Government Revenue ◽  
Long Run ◽  
Short Run ◽  
Per Capita ◽  
A Share

The effect of government relative size on economic growth is a contentious issue. This paper is undertaken to test the relationship between government size and economic growth in Vietnam. The study is a panel data investigation, involving 60 provinces over the period 1997–2012. Various measures of government size are defined: provincial government expenditure as a share of gross provincial product (GPP), provincial government revenue as a share of GPP, real provincial government expenditure per capita, and real provincial government revenue per capita. Empirical estimates are employed by conducting Difference Generalized Method of Moments method proposed by Arellano and Bond (1991) and Pooled Mean-Group method by Pesaran, et al. (1999). These tests reveal: (i) provincial government expenditure (revenue) as a share of GPP has a significantly negative effect on economic growth; and (ii) the real government expenditure (revenue) per capita has a significantly positive effect on economic growth. It is also found that the long-run and short-run coefficients of government expenditure size are significant and negative, that the correction mechanism from the short run disequilibrium to the long run equilibrium is not convergent, and that government employment has a negative correlation with economic growth.

scholarly journals An artificial Wicksell–Keynes economy integrating short-run business cycle and long-term cumulative trend

2020 ◽  
Vol 15 (4) ◽  
pp. 953-998 ◽  
Author(s):  
Ichiro Takahashi ◽  
Isamu Okada
Keyword(s):  
Banking Sector ◽  
Full Employment ◽  
Aggregate Demand ◽  
Real Wages ◽  
Fractional Reserve Banking ◽  
Investment Funds ◽  
Wage Stickiness ◽  
Long Run ◽  
Short Run ◽  
Reserve Banking

Abstract Economists have investigated how price–wage rigidity influences macroeconomic stability. A widely accepted view asserts that increased rigidity destabilizes an economy by requiring a larger quantity adjustment. In contrast, the Old Keynesian view regards nominal rigidity as a stabilizing factor, because it reduces fluctuations in income and thus aggregate demand. To examine whether price–wage stickiness is stabilizing or destabilizing, we build an agent-based Wicksell–Keynes macroeconomic model, which is completely closed and absolutely free from any external shocks, including policy interventions. In the model, firms setting prices and wages make both employment and investment decisions under demand constraints, while a fractional-reserve banking sector sets the interest rate and provides the firms with investment funds. As investment involves a gestation period, it is conducive to overproduction, thereby causing alternate seller’s and buyer’s markets. In the baseline simulation, a stable economy emerges with short-run business cycles and long-run fluctuations. One unique feature of the economy is its remarkable resilience: When afflicted by persistent deflation, it often manages to reverse the deflationary spiral and get back on a growth track, ultimately achieving full or nearly full employment. The virtual experiments demonstrate that prices and wages must both be moderately rigid to ensure long-run stability. The key stabilizing mechanism is a recurring demand-sufficient economy, in which firms are allowed to increase employment while simultaneously cutting real wages.

scholarly journals Liquidity Risk and Financial Performance of Commercial Banks in Kenya

2017 ◽  
Vol 9 (3) ◽  
pp. 256 ◽  
Author(s):  
Jane Gathigia Muriithi ◽  
Kennedy Munyua Waweru
Keyword(s):  
Financial Performance ◽  
Commercial Banks ◽  
Generalized Method Of Moments ◽  
Liquidity Risk ◽  
Coefficient Of Determination ◽  
Return On Equity ◽  
Coverage Ratio ◽  
Long Run ◽  
Negative Effect ◽  
Short Run

The focus of this study was to examine the effect of liquidity risk on financial performance of commercial banks in Kenya. The period of interest was between year 2005 and 2014 for all the 43 registered commercial banks in Kenya. Liquidity risk was measured by liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) while financial performance by return on equity (ROE). Data was collected from commercial banks’ financial statements filed with the Central Bank of Kenya. Panel data techniques of random effects estimation and generalized method of moments (GMM) were used to purge time-invariant unobserved firm specific effects and to mitigate potential endogeneity problems. Pairwise correlations between the variables were carried out. Wald and F- tests were used to determine the significance of the regression while the coefficient of determination, within and between, was used to determine how much variation in dependent variable is explained by independent variables. Findings indicate that NSFR is negatively associated with bank profitability both in long run and short run while LCR does not significantly influence the financial performance of commercial banks in Kenya both in long run and short run. However, the overall effect was that liquidity risk has a negative effect on financial performance. It is therefore advisable for a bank’s management to pay the required attention to the liquidity management.

scholarly journals Impacts of Asset Utilization, Market Competition and Market Distance on Stock Returns

2021 ◽  
Vol 28 (1) ◽  
pp. 52
Author(s):  
Jeanne-Claire Patin ◽  
Matiur Rahman ◽  
Muhammad Mustafa
Keyword(s):  
Stock Returns ◽  
Market Competition ◽  
Generalized Method Of Moments ◽  
Data Set ◽  
Public Firms ◽  
Positive Effects ◽  
Long Run ◽  
Dynamic Ols ◽  
Short Run ◽  
Market Distance

To empirically study the effects of asset utilization, market competition and market distance on stock returns of 1961 US public firms of different industry categories over 2001-2015. The heterogeneous panel data set consists of 23,532 (N= 1961*T= 15) observations. Pedroni’s panel co-integration, panel vector errorcorrection model (PVECM), panel dynamic OLS (PDOLS), and panel generalized method of moments (PGMM) are implemented. Both asset utilization and market competition have short-run and long-run positive effects on stock returns. But the effects of market distance are negative. The evidence for convergence toward the long-run equilibrium is very weak. Firms should be strategic to improve asset utilization, be more competitive and expand market distance to maximize stockholders’ wealth.

scholarly journals META-ANALYSIS OF MONEY DEMAND IN INDONESIA

2012 ◽  
Vol 15 (1) ◽  
pp. 41-62
Author(s):  
Galih Riyandi
Keyword(s):  
Money Demand ◽  
Opportunity Cost ◽  
Fixed Effects ◽  
Income Elasticity ◽  
Meta Analysis ◽  
Demand For Money ◽  
Cost Elasticity ◽  
Classification Code ◽  
Long Run ◽  
Short Run

Theory and empirical study about demand for money is the key feature in macroeconomics theory. The study about demand for money in Indonesia has been developing with various techniques. Its result in various analyses can be difficult in understanding behaviour of demand for money in Indonesia. This paper aims to find out the tendency of demand for money in Indonesia by analyzing long run and short run income elasticity and opportunity cost elasticity. We use fixed effects meta-analysis and unweighted average meta-analysis. The result shows that income elasticity and opportunity cost elasticity are consistent with theory of money demand. That result can be used as an empirical foundation to future study about demand for money in Indonesia.  Keywords: demand for money, meta analysis, fixed effects.JEL Classification code: E41, E52

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