Credit Risk and Financial Stability Under Controlling Effect of Financial Sector Development: A Study from Banking Sector of GCC Members

Financial inclusion has allowed financial products with very high-interest rates and complex conditions to become increasingly affordable. Financial inclusion programs, which aim to reach all social strata, strongly expose financial institutions to risk and particularly credit risk. That said, additional interventions such as financial education of those included are needed. We aim to examine the impact of financial literacy and financial inclusion of households on bank performance. Specifically, we want to examine the impact of financial literacy on credit risk, competitiveness among banks and financial stability. The FGLS estimation results suggest that financial literacy and financial inclusion reduce credit risk and enhance the stability of banks, and regarding competitiveness, our results were inconclusive as they show different effects for each competitiveness indicator, although they point to improved competitiveness in some cases. This research allows policymakers to understand that individual financial attitudes can be reflected in the general welfare of financial institutions and encourages the intensification of programs aimed at improving household financial literacy.

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Financial Sector Development, Openness, and Entrepreneurship: Panel Regression Analysis

Sustainability ◽

10.3390/su10103493 ◽

2018 ◽

Vol 10 (10) ◽

pp. 3493 ◽

Cited By ~ 3

Author(s):

Yilmaz Bayar ◽

Marius Gavriletea ◽

Zeki Ucar

Keyword(s):

Banking Sector ◽

Negative Impact ◽

Early Stage ◽

Trade Openness ◽

Financial Sector ◽

Entrepreneurial Activity ◽

Financial Openness ◽

Middle Income ◽

Fdi Inflows ◽

Financial Sector Development

Entrepreneurship plays a major role in all countries’ economies through generating new jobs and innovation, and in turn making a contribution to the economic growth. Therefore, the determinants underlying entrepreneurship have become important for designing an environment that increases entrepreneurial activity. In this study, we considered it important to investigate the influence of factors such as financial sector development, foreign direct investment (FDI) inflows, and trade and financial openness on entrepreneurship, using information from 15 upper middle income and high-income countries over the 2001–2015 period. The findings reveal that the banking sector and capital market development, FDI inflows, and trade openness affect the total early-stage entrepreneurial activity positively. Furthermore, the crises had a negative impact on the entrepreneurship.

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Financial stability and liquidity risks in the banking sector across the CEMAC region

Business And Management Studies An International Journal ◽

10.15295/bmij.v9i1.1788 ◽

2021 ◽

Vol 9 (1) ◽

pp. 343-354

Author(s):

Henri Kouam

Keyword(s):

Commercial Banks ◽

Financial Stability ◽

Banking Sector ◽

Central Government ◽

Financial Sector ◽

Real Economy ◽

Capital Assets ◽

Long Run ◽

Domestic Credit ◽

The Impact

How does credit from the financial sector and claims on the central government affect banking sector liquidity and financial stability risks? This paper constructs an algorithm, which investigates the impact of domestic credit from the financial sector, bank to capital assets ratio, claims on the central government on banking sector liquidity – a proxy for financial stability. The results show a positive and statistically significant impact of the capital assets ratio on the bank's liquidity of 3.1%. It equally finds that domestic credit and claims on central government hurt bank liquidity, notably of -0.15% and -2.5%, respectively. The study recommends that commercial banks invest in higher-value domestic projects to improve their profitability over the long-run, thereby boosting financial stability. Furthermore, the central bank should make additional liquidity for banks contingent on the amount of credit they provide to the real economy.

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CREDIT RISK OPTIMIZATION FROM THE POINT OF VIEW OF BANKING INSTITUTION: THEORETICAL AND APPLIED PRINCIPLES

Pryazovskyi Economic Herald ◽

10.32840/2522-4263/2021-1-34 ◽

2021 ◽

Author(s):

Iryna Khoma ◽

Yuliia Myrhorodets

Keyword(s):

Credit Risk ◽

Business Strategy ◽

Financial Stability ◽

Banking Sector ◽

Bank Lending ◽

Point Of View ◽

Credit Expansion ◽

Risk Optimization ◽

Debt Collection ◽

Banking Institution

The implementation of effective banking activities helps to maximize the profits of the banking institution, because it is due to credit operations that the main part of the profits coming to the reserve funds is formed, as well as directed to the payment of dividends to the bank's shareholders. Therefore, minimizing credit risk and solving the problem of non-performing loans are one of the key priorities in developing a banking business strategy. Credit risk is the risk that a borrower will default on its principal debt and interest on its use. Credit risk management (its minimization) is carried out by means of the following measures: credit limitation; diversification of the bank's loan portfolio; control over the use of credit and efficiency in debt collection; credit insurance; sufficient and high-quality collateral for loans; analysis of the borrower's creditworthiness. The share of non-performing loans (NPLs) in Ukraine was 48.4% at the beginning of 2020. It has remained extremely high in recent years, although it has been gradually declining since 2018. The high share of NPLs is the result of credit expansion in previous years, when borrowers 'solvency standards were low and creditors' rights were insufficiently protected. Another important reason is the practice of lending to related parties who stopped servicing loans during the crisis. Today, all non-performing loans are recognized by banks, the level of coverage of their reserves is constantly growing and is approximately 95%. Strategy formation regulation and minimization of credit risk in scale government (at the macro level) is necessary to achieve financial stability of the banking sector. The purpose of the strategy is to regulate and minimize credit risk at the bank level (at the micro level) should be in the location optimal ratio between profitability, risk and liquidity of the bank's credit operations. This article analyses the state of bank lending in Ukraine and develops a method of optimizing credit risk in terms of protecting a banking institution. The distribution of credit risk of Oschadbank JSC and the level of non-performing loans of the bank are analysed. Recommendations for the protection of a banking institution in terms of optimizing the existing credit risk are given.

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Disproportions between Вanking System and Non-financial Sector Development in the Russian Economy

Voprosy Ekonomiki ◽

10.32609/0042-8736-2003-3-103-111 ◽

2003 ◽

pp. 103-111 ◽

Cited By ~ 2

Author(s):

L. Baron ◽

T. Zakharova

Keyword(s):

Banking Sector ◽

Banking Crisis ◽

Banking System ◽

Financial Sector ◽

Corporate Sector ◽

Medium Term ◽

Financial Sector Development ◽

Russian Economy ◽

Credit Demand

It's been shown that despite some improvements in the Russian banking sector, it's indicators have not achieved the pre-crisis level yet and can't be compared with similar indicators in other countries. Moreover, Russian banks' credit resources are insufficient if the growing tendency of exceeding outstanding credits' volume over corresponding banks' resources is taken into account. In the authors' opinion it can lead to incapability of the Russian banking system to satisfy the relevant credit demand of the non-financial corporate sector and cause a medium-term systemic banking crisis.

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Stock market, banking sector and economic growth

Studies in Economics and Finance ◽

10.1108/sef-02-2017-0046 ◽

2019 ◽

Vol 36 (3) ◽

pp. 348-364

Author(s):

Soumya Guha Deb ◽

Sibanjan Mishra ◽

Pradip Banerjee

Keyword(s):

Stock Market ◽

Causal Relationship ◽

Emerging Economies ◽

Banking Sector ◽

Financial Sector ◽

Real Sector ◽

Content Type ◽

Developed Economies ◽

Financial Sector Development ◽

Economic Boom

Purpose The purpose of this paper is to examine the causal relationship between economic development and financial sector development for 28 countries at different stages of their development. The authors specifically focus on the nature of causality during economic boom and tranquil cycles. Design/methodology/approach The study uses quarterly time series panels of 17 developed and 11 emerging countries, during 1993Q1-2014Q4 with each having three sub-panels – full sample, a period of the economic uptrend (UP), and period of the economic downtrend. The authors use a univariate analysis for initial screening followed by panel unit root test, panel co-integration and causality test proposed by Toda–Yamamoto to examine the causal relationship. Findings The principal results suggest that for developed economies, there is a causal flow from financial sector to real sector in line with the “supply-leading” hypothesis, whereas for emerging economies, it is from real sector to financial sector, in line with the “demand-following” hypothesis. This overall relationship is strong for both emerging and developed economies during economic boom or UP cycles, but becomes weak during economic downturns or tranquil periods. Originality/value This study is different from previous studies on this issue and contributes to the existing literature in a number of ways. First, the focus of this paper revolves around identification of differential patterns in causal flows between real and financial sectors for different economies, across different economic cycles. Second, to present a robust representation of financial sector, the authors consider both banking sector and stock market parameters as the proxy for financial sector development. Third, the authors address the “stock-flow problem” in the measurement of financial variables a typical criticism of some of the previous studies. Finally, the authors use a rich sample size comprising of about 2,500 quarterly observations for each variable, with about 1,500 observations from developed and 1,000 from emerging economies.

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Fiscal Deficits, Bank Credit Risk, and Loan-Loss Provisions

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109020000472 ◽

2020 ◽

pp. 1-53 ◽

Cited By ~ 1

Author(s):

Felipe Bastos Gurgel Silva

Keyword(s):

Credit Risk ◽

Financial Distress ◽

Financial Stability ◽

Banking Sector ◽

Important Variable ◽

Loan Loss ◽

Additional Source ◽

Fiscal Deficits ◽

Loan Loss Provisions ◽

Stabilization Policies

Abstract Fiscal deficits represent an important variable for banks’ aggregate credit risk, revealing governments’ ability to curb banks’ losses in bad states, either with direct cash infusions or with macroeconomic stabilization policies. Deteriorating deficits are associated with increasing financial distress of the banking sector and higher levels of loan-loss provisions. The effect is more pronounced for banks with a strong aversion to underprovisioning and is robust to a battery of tests and to the identification of fiscal shocks using military-spending data. This association represents an additional source of negative comovement between provisions and economic conditions, with implications for financial stability.

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Sustainable Economic Growth Support through Credit Transmission Channel and Financial Stability: In the Context of the COVID-19 Pandemic

Sustainability ◽

10.3390/su13052692 ◽

2021 ◽

Vol 13 (5) ◽

pp. 2692

Author(s):

Deimantė Teresienė ◽

Greta Keliuotytė-Staniulėnienė ◽

Rasa Kanapickienė

Keyword(s):

Economic Growth ◽

Credit Risk ◽

Euro Area ◽

Financial Distress ◽

Financial Stability ◽

Banking Sector ◽

Risk Tolerance ◽

Transmission Channel ◽

Sustainable Economic Growth

All countries worldwide faced the COVID-19 pandemic and had to take actions to lower the economic shock. Financial authorities play an especially significant role in economics and can help to manage the negative consequences. This article focuses on the European central bank monetary policy and actions taken for COVID-19 risk management. This research aims to identify the significant factors influencing the long-term loans for enterprises’ credit conditions in a forward-looking approach and determine the impact of the spread of COVID-19 pandemic on banking sector credit risk, financial distress, lending growth, and financial soundness indicators. This research is focused on the credit transmission channel and the role of the Pandemic Emergency Purchase Program in different countries of the euro area. To reach the main goal, panel data regression models are used. Our findings showed that the banks’ risk tolerance is a principal factor influencing long-term loan credit standards. We also identified that the spread of the COVID-19 pandemic has a statistically significant negative effect on banking sector credit risk, financial distress, banking sector profitability, and solvency. Furthermore, after analyzing the euro area banking sector, we found that liquidity increased. Hence, it means that banks have enough funds to support sustainable economic growth, but on the other side, commercial banks do not want to take credit risk because of their risk tolerance. Our research findings show the mixed effect of the COVID-19 pandemic on financial stability: while the overall financial distress decreased and banking sector liquidity increased, the profitability and solvency decreased some extent.

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Thailand

IMF Staff Country Reports ◽

10.5089/9781513516523.002 ◽

2019 ◽

Vol 19 (309) ◽

Author(s):

Keyword(s):

Financial Stability ◽

Banking Sector ◽

Financial Sector ◽

Policy Framework ◽

Medium Term ◽

External Imbalances ◽

Assessment Program ◽

Fiscal Management

Thailand’s robust policy framework and ample buffers continue to underpin its resilience to external headwinds. The authorities have taken measures to strengthen medium-term fiscal management and financial stability. The recent Financial Sector Assessment Program (FSAP) concluded that financial vulnerabilities appear to be contained and that the banking sector is resilient to severe shocks. At the same time, long-standing domestic and external imbalances persist, leaving the economy vulnerable to the global slowdown and trade tensions.

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