scholarly journals Impact of determinants of the financial distress on financial sustainability of Ethiopian commercial banks

2019 ◽  
Vol 14 (3) ◽  
pp. 187-201 ◽  
Author(s):  
Kishor Meher ◽  
Henok Getaneh
Keyword(s):  
Financial Distress ◽  
Commercial Banks ◽  
Financial Stability ◽  
Liquidity Risk ◽  
Stability Index ◽  
Financial Sustainability ◽  
Net Income ◽  
Return On Assets ◽  
Asset Quality ◽  
Bank Soundness

The study aims to investigate the impact of determinants of financial distress on financial sustainability of Ethiopian commercial banks. The balanced panel data of 12 commercial banks of Ethiopia have been taken for the study from 2011 to 2017. The research deploys Ordinary Least Square (OLS) Regression Model. The indicators of financial distress are bank’s specific internals and macro-economic factors. The proxies of financial sustainability are Return on Assets, Return on Equity, Financial Stability Index and Bank Soundness. The findings reveal that the Absolute Liquidity Risk and Net Income Growth are found to be positive and significant and Solvency Risk negative and significant in relation to Return on Assets. Asset Quality is found to be positive and significant and Solvency Risk negative and significant with respect to Return on Equity. The Asset Quality and Net Income Risk are positive and significant and Solvency Risk is negative and significant with relation to the Financial Stability Index. Absolute Liquidity Risk and Liquidity Risk are positive and significant and Credit Risk negative and significant with Bank Soundness. Free Cash Flow and Net Income Growth are essential for enhancing Return on Assets and Bank Soundness, and managing equity within the prudential norms could bring forth short-term financial sustainability of commercial banks. By lowering provisioning of loan loss, Growth in Net Interest Income and managing Solvency Risk could ensure financial stability to the banks, which in turn leads to financial sustainability. The study reveals that financial sustainability of banks is insulated from the exposures of systematic risks originating from macroeconomic factors.

scholarly journals Financial Stability Index for the Financial Sector of Pakistan

Economies ◽  
2019 ◽  
Vol 7 (3) ◽  
pp. 81
Author(s):  
Sadia Babar ◽  
Rashid Latief ◽  
Sumaira Ashraf ◽  
Sania Nawaz
Keyword(s):  
Financial Stability ◽  
Stability Index ◽  
Financial Sector ◽  
Decision Makers ◽  
Return On Assets ◽  
Financial Reports ◽  
Liquid Asset ◽  
Return On Equity ◽  
Linear Probability

This study aims to develop a financial stability index for the Pakistani financial sector by using the financial reports for the period of 2001–2011. Specifically, we constructed three different classes of indices in this study based on a variance-equal weighted approach, a linear probability approach, and a logistic approach. We also assessed the prediction accuracy of the financial stability index. All indices indicated that profitability, liquid liability to the liquid asset, non-performing loan, uncovered liabilities, interest spread and inter-fund to liquid liabilities variables contribute significantly to the determination of financial stress of commercial banks. We also compared the results of indices computed with different methodologies—among them was the index constructed by employing coefficients of the logistic model and which performed outstandingly in predicting distressed and non-distressed banks. Moreover, the findings of this study suggest that in regard to return on assets and return on equity, when employed in a stepwise manner for developing the financial stability index, the results are similar in the sense that both profitability indicators have the same behavior. Finally, we conclude that the financial stability indices developed in this study could help decision makers to detect and avoid instability in the future.

The Use Of CAMELS In Detecting Financial Distress Of Islamic Banks In Malaysia

2014 ◽  
Vol 30 (2) ◽  
pp. 445 ◽  
Author(s):  
Rashidah Abdul Rahman ◽  
Mazni Yanti Masngut
Keyword(s):  
Neural Network ◽  
Quality Management ◽  
Financial Distress ◽  
Capital Adequacy ◽  
Advisory Council ◽  
Annual Reports ◽  
Islamic Banks ◽  
Return On Assets ◽  
Management Quality ◽  
Asset Quality

The current study uses CAMEL (Capital Adequacy, Asset Quality, Management Quality, Earnings Efficiency, and Liquidity) ratings system, with the addition of Shariah Compliance Ratio (CAMELS) in order to detect the financial distress of Islamic banks in Malaysia. Using neural network, the study analyses data collected from the 17 Islamic banks annual reports for the period 2006 to 2010. It was found that all Islamic banks have higher ETA ratios which portray a good performance of capital adequacy and are less likely to face financial distress. As for asset quality, all Islamic banks did not have the possibility to face financial distress as they are able to handle their non-performing loans throughout the years. Meanwhile for management quality, all Islamic banks show lower ratios in paying salaries to their employee. Earning efficiency for all Islamic banks show better performance and will be less likely to face financial distress in terms of return on assets but not for return of equity. Liquidity indicates that the Islamic banks have a large number of loans but they have sufficient liquid assets in order to cover their liabilities and commitments. Lastly for Shariah Compliance, Islamic banks have complied with all rules and regulations that have been regulated by Bank Negara Malaysias Shariah Advisory Council.

scholarly journals FINANCIAL STABILITY OF A BANK - FACTOR OF STABILITY OF BANKING SYSTEM

2018 ◽  
pp. 5-11
Author(s):  
Andrii Ramskyi ◽  
Inna Budnichenko
Keyword(s):  
Commercial Banks ◽  
Financial Stability ◽  
Banking System ◽  
Development Program ◽  
Financial Sustainability ◽  
Internal Factors ◽  
Financial Condition ◽  
Stage Of Development ◽  
Banking Institutions ◽  
The Stability

The article is devoted to the analysis of the financial stability of Ukrainian banks at the present stage of development and the identification of the main factors of influence that are associated with it. The main tendencies of development of the banking system of Ukraine are considered. The present state of the banking system of Ukraine is determined. Financial stability plays a significant role in planning the activities of commercial banks. In general, its indicators reflect the level of riskiness of the functioning of the entity of the banking system. Managing financial sustainability has a significant impact on the functioning of banks. That is why it is necessary to create special control departments in banking institutions. The research of financial stability of banks is based on financial sustainability indicators developed and used by the IMF and the World Bank as the basis for the "Integrated Financial Sector Development Program until 2020". The necessity of applying different methods for evaluating the financial stability of commercial banks has been established in order to identify a wider range of problems related to the efficiency of the functioning of the banking system. The description of  two main groups of factors, under the influence of which the financial stability of banks  undergoes changes, is presented. It was revealed that external factors have a more significant impact on the financial stability of a bank. In particular, the factors of mega environment have become more important when banks enter the international financial space. Internal factors lie mostly in the management plane, and it is just the inefficient management of the bank that leads to the disruption of its stable financial condition. Specific features of management of financial stability and methods of its evaluation are considered. The analysis of economic standards of the banking system of Ukraine is carried out. The measures are proposed to minimize the risks and maintain the stability of banking institutions at the required level for normal functioning in modern conditions. It has been proved that providing, supporting, analyzing and evaluating the financial stability of commercial banks is a driving force in the development of the banking system, and hence the entire Ukrainian economy.

scholarly journals FINANCIAL DISTRESS AND PROFITABILITY OF TIER THREE COMMERCIAL BANKS IN KENYA

2018 ◽  
Vol 3 (1) ◽  
pp. 46
Author(s):  
Caroline M. Kimathi ◽  
Dr. John Mungai
Keyword(s):  
Multiple Regression ◽  
Research Design ◽  
Financial Distress ◽  
Commercial Banks ◽  
Return On Assets ◽  
Insignificant Effect

Purpose: This study is aimed at analysing the effect of financial distress on the profitability of tier three commercial banks in Kenya.Methodology: Financial distress was proxied using non-performing loans, leverage and liquidity. Profitability was indicated using return on assets ratio. The study sampled twenty commercial banks and used casual research design. The study estimated a multiple regression linear model.Results: The study established that non-performing loans have a negative and statistically significant effect, Leverage had a positive and statistically significant effect while Liquidity had a positive and statistically insignificant effect on the profitability of tier three commercial banks in Kenya.

scholarly journals Peculiarities of ensuring financial sustainability of the Ukrainian banking system

2018 ◽  
Vol 13 (1) ◽  
pp. 184-195
Author(s):  
Olha Vovchak ◽  
Viktoriia Rudevska ◽  
Roksolana Holub
Keyword(s):  
Commercial Banks ◽  
Financial Stability ◽  
Banking System ◽  
Developed Countries ◽  
Equity Capital ◽  
Capital Adequacy ◽  
Financial Sustainability ◽  
Bank Capital ◽  
Strategic Objective ◽  
Capital Ratios

Ensuring and strengthening the financial sustainability of banks is a difficult and not completely resolved task. It is inherent not only to developed countries, it has also be¬come nationally important in Ukraine, which was largely predetermined by the specifics of the domestic banks development. This is explained, in particular, by the banking insti¬tutions’ focus mainly on the relatively short-term activity, the need to work under high risk, resulting from economic and political instability in the country. Therefore, nowa¬days, it is urgent for each Ukrainian bank to focus on the main strategic objective – effec¬tive management and ensuring financial sustainability. The purpose of this study is to assess the current state and identify the features of ensuring financial sustainability of the banking system of Ukraine.It was pointed out in the study that the negative tendency to increase the number of in¬solvent commercial banks during 2012–2017 indicates problems with providing finan¬cial sustainability to commercial banks. The tendencies have been revealed that testify to the problems of the banking system capitalization in Ukraine, which greatly affects its financial stability. Given the analysis of indicators of banks financial sustainability that characterize the bank capital adequacy, the conclusion is made on ambiguous as¬sessment of sufficient level of capitalization, since despite the correspondence of most values of coefficients to the indicators, there is a lack of capitalization of the domestic banking system and equity capital concentration. In general, the results made it pos¬sible to identify trends in the development of capital ratios and financial sustainability indicators and to shape appropriate measures to increase the level of capitalization in order to ensure the financial sustainability of the banking system.

scholarly journals Financial Sustainability Assessment of the Largest Systemically Important Credit Institutions in the Context of the Global Instability

2021 ◽  
Vol 12 (2) ◽  
pp. 10
Author(s):  
Oksana V. Savchina ◽  
Ekaterina A. Sidorina ◽  
Olga V. Savchina ◽  
Petr S. Shcherbachenko
Keyword(s):  
National Economy ◽  
Financial Stability ◽  
Banking Sector ◽  
Sustainability Assessment ◽  
Banking System ◽  
Capital Adequacy ◽  
Business Strategies ◽  
Financial Sustainability ◽  
Management Efficiency ◽  
Asset Quality

The national banking system is the driver for the national economy that unites various types of credit organizations that operate within a single monetary mechanism. The banking system is a part of the economic “organism”, whose condition determines the stable development of society. The problems that currently exist in the banking sector reflect instability of the entire economic situation in the country. The reasons are a reduction in budget support for organizations and the inability of some of them to adapt to changing external conditions. In crisis conditions, it is of particular interest to assess the financial sustainability of the activity of the largest systemically important banks in the country, which are the “circulatory system” of the national economy. This article assesses the financial stability of PJSC “Sberbank of Russia” based on an analysis of the main groups of its performance indicators for 2007-2019: capital adequacy, asset quality, management efficiency, profitability and liquidity. According to the research results, it is revealed that during the period under review, the activity of Sberbank is stable with respect to such indicators as capital adequacy, profitability, management efficiency and liquidity. Bank activity is unstable relative to asset quality indicators. The high value of the asset quality ratio characterizes the increased degree of riskiness of operations conducted. The ratio of overdue debt is above the norm, which adversely affects the financial stability of the bank. The most important achievement of Sberbank of Russia in 2019 - the launch of a new digital platform of the bank. The use of artificial intelligence technologies has already become an important driver of Sberbank business. Due to the pandemic of COVID-19, the Russian banking sector may face a number of problems. By 2021-2022, the growth is expected only by those banks that will build an effective risk management system and will be able to adapt their business strategies to the new economic realities and tougher requirements of the regulator.

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.

scholarly journals Determinants of Local Commercial Banks' Performance in Malaysia

2018 ◽  
Vol 7 (3.21) ◽  
pp. 457
Author(s):  
Lee Wee Jeng ◽  
Suganthi Ramasamy ◽  
Devinaga Rasiah ◽  
Peter Yuen Yee Yen ◽  
Shalini Devi Pillay
Keyword(s):  
Economic Growth ◽  
Credit Risk ◽  
Commercial Banks ◽  
Financial Stability ◽  
Inflation Rate ◽  
Liquidity Risk ◽  
Asset Return ◽  
Return On Equity ◽  
Net Interest Margin ◽  
Using Data

Commercial banks play an important role in developing a country’s economy and maintaining its financial stability. Commercial banks will usually receive deposits from customers and lend out the money to people who need the money for their businesses or other legal purposes. Therefore, their performance is extremely important for a country’s financial stability and economic growth. This research examined the determinants of local commercial banks’ performance in Malaysia. Performance was measured using Return on Asset, Return on Equity and Net Interest Margin. Using data from eight local commercial banks in Malaysia from tea 2006 to year 2015, this study found that credit risk, liquidity risk, bank’s size and inflation rate significantly affect banks’ performance.  

scholarly journals The effect of liquidity risk on the performance of banks: Evidence from Jordan

Accounting ◽  
2022 ◽  
Vol 8 (2) ◽  
pp. 217-226 ◽  
Author(s):  
Mohammed AL-Ardah ◽  
Saleh K. Al-Okdeh
Keyword(s):  
Statistical Analysis ◽  
Financial Performance ◽  
Commercial Banks ◽  
Stock Exchange ◽  
Liquidity Risk ◽  
Survey Method ◽  
Working Capital ◽  
Return On Assets ◽  
Investment Ratio ◽  
Amman Stock Exchange

This study aimed to determine the impact of liquidity risk on financial performance of Jordanian banks, where liquidity risk was measured by (Liquidity ratio, net working capital, cash and investment ratio to total deposits), and financial performance was also measured through the index (return on assets) and the modifying variable (bank size) measured through the natural logarithm of total assets was also added. To achieve the objectives of the study, the analytical quantitative approach was adopted. The study community consisted of all 13 commercial banks listed on the Amman Stock Exchange. All banks in the study community were selected as a study sample using the comprehensive survey method, and the statistical analysis program (SPSS) was used to test the study hypotheses. Based on the results of the statistical analysis, it was found that there was an impact of liquidity risk on financial performance measured by return on assets in Jordanian commercial banks listed on Amman Stock Exchange, and there was an impact for each of (current liquidity ratio, net working capital, cash and investment ratio to total deposits) on financial performance measured by return on assets in Jordanian commercial banks listed on Amman Stock Exchange. It was also found that the size of the bank contributes to modifying the effect of liquidity risk on financial performance measured by return on assets in Jordanian commercial banks listed on Amman Stock Exchange. The study concluded a set of recommendations, the most important of which are: commercial bank administrations should increase interest in exploiting their liquidity within acceptable risk limits to reach optimal ratios for financial performance by balancing the returns to be achieved with the potential risks of such expenses in a way that ensures the positive impact of liquidity risk on the financial performance of those banks.

scholarly journals The Bank Soundness in Indonesia: Risk and Corporate Governance

2021 ◽  
Vol 1 (1) ◽  
pp. 01-12
Author(s):  
Lis Sintha Oppusunggu ◽  
Ika Pratiwi Simbolon
Keyword(s):  
Corporate Governance ◽  
Liquidity Risk ◽  
Secondary Data ◽  
Risk Governance ◽  
Corporate Management ◽  
Literature Study ◽  
Return On Assets ◽  
Descriptive Research ◽  
Financial Soundness ◽  
Bank Soundness

This study aims to provide the evidence associated with the growth of corporate governance in crisis. This research is a type of literature study with secondary data (ROA and LDR) period January 2015–December 2019. The analysis is by using descriptive research with the support of theories and the findings from previous studies. Return on Assets (ROA) has increased and decreased for several periods and Loan to Deposit Ratio (LDR). Profitability with ROA decreased by 0.35% from 2.82% in January 2015 to 2.47% in December 2019. As measured by ROA, banking performance declines to make banks vulnerable to a crisis. Banks that have a high LDR potentially have liquidity risk. This study provides descriptive statistics that describe the potential of high LDR in the future since there's a sharp trend for the increasing value of LDR. LDR increased as much as 5.95% from 88.48% in January 2015 to 94.43% in December 2019. Liquidity risk continues to rise to make banks vulnerable to a crisis. This study provides several findings from previous research regarding standard corporate governance and risk governance in the financial crisis to mitigate those risks. Evaluating formal corporate management and risk governance can lead to optimal financial soundness.

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