scholarly journals The Effect of COVID-19 to Credit Risk and Capital Risk of State-Owned Bank in Indonesia: A System Dynamics Model

2021 ◽  
Vol 18 ◽  
pp. 1121-1136
Author(s):  
Taufiq Hidayat ◽  
Dian Masyita ◽  
Sulaeman Rahman Nidar ◽  
Erie Febrian ◽  
Fauzan Ahmad
Keyword(s):  
System Dynamics ◽  
Credit Risk ◽  
Risk Mitigation ◽  
Operating Cost ◽  
Monitoring Program ◽  
Capital Adequacy ◽  
Bank Risk ◽  
Bank Capital ◽  
Policy Simulation ◽  
Risk Scenario

The global COVID-19 pandemic has greatly affected people, especially in the economic and banking sectors. The Indonesian Financial Services Authority (Otoritas Jasa Keuangan, OJK) issued a credit restructuring policy, effective from March 2020 to March 2022, to reduce credit and bank capital risk. This study proposes the bank risk scenario after the credit restructuring policy of the OJK moratorium in March 2022 and proposes the internal bank policy simulation to mitigate credit and capital risks in terms of Non-Performing Loan (NPL) and Capital Adequacy Ratio (CAR). The difficulty of this study is how to develop the risk scenario and to simulate the bank risk mitigation policy after the policy moratorium, while the COVID-19 pandemic is still ongoing and the economy is not yet normal. To that purpose, this study uses a system dynamics methodology with Powersim Studio 10© software that is able to make scenarios on the level of credit risk (NPL) and bank capital (CAR) and able to simulate internal bank policy to overcome the risk by considering the environmental and policy changes. Based on the policy simulation, it is recommended that bank can implement the restructuring policy to control the credit risk and strengthening the NPL monitoring activity in order to manage and decrease the loan impairment expenses. To increase CAR, the result shows that the combined policy consists of the NPL monitoring program, the interest rate and the operating cost management program is able to produce a significant increase in bank’s capital (CAR). The original contribution of this study is to provide new model of credit and capital risk scenario and risk mitigation simulation during the COVID-19 pandemic. The advantage of this study is that the model can be tested and implemented to other banks.

scholarly journals Capital structure and profitability: An empirical study of South African banks

2016 ◽  
Vol 14 (1) ◽  
pp. 8-19 ◽  
Author(s):  
Kudzai Raymond Marandu ◽  
Athenia Bongani Sibindi
Keyword(s):  
Capital Structure ◽  
Credit Risk ◽  
South African ◽  
Time Series Data ◽  
Emerging Market ◽  
Strong Relationship ◽  
Capital Adequacy ◽  
Series Data ◽  
Bank Capital ◽  
The Relationship

The bank capital structure debacle in the aftermath of the 2007-2009 financial crises continues to preoccupy the minds of regulators and scholars alike. In this paper we investigate the relationship between capital structure and profitability within the context of an emerging market of South Africa. We conduct multiple linear regressions on time series data of big South African banks for the period 2002 to 2013. We establish a strong relationship between the ROA (profitability measure) and the bank specific determinants of capital structure, namely capital adequacy, size, deposits and credit risk. The relationship exhibits sensitivity to macro-economic shocks (such as recessions), in the case of credit risk and capital but is persistent for the other determinants of capital structure.

scholarly journals Effects of Bank Capital on Profitability and Credit Risk: The Case of Vietnam's Commercial Banks

2016 ◽  
Vol 23 (04) ◽  
pp. 117-137
Author(s):  
Vinh Nguyen Thi Hong ◽  
Thao Le Phan Thi Dieu
Keyword(s):  
Moral Hazard ◽  
Credit Risk ◽  
Method Of Moments ◽  
Commercial Banks ◽  
Generalized Method Of Moments ◽  
Bank Risk ◽  
Bank Capital ◽  
Negatively Associated

This paper seeks to examine the effects of bank capital on profitability and credit risk of 30 Vietnam’s commercial banks from 2007 to 2014. Using the system generalized method of moments (GMM), the paper conducts several tests on the moral hazard and regulatory hypotheses on the relationships among bank capital, profitability, and credit risk. With no regard to other determinants, its results indicate that the effects are evident, i.e. bank risk is found to impact differently on bank returns, and it is also negatively associated with credit risk of commercial banks in Vietnam.

scholarly journals The Effects Of Ownership Structure And Listed Status On Bank Risk In China

2013 ◽  
Vol 29 (3) ◽  
pp. 695 ◽  
Author(s):  
Maoyong Cheng ◽  
Hong Zhao ◽  
Junrui Zhang
Keyword(s):  
Regression Analysis ◽  
Credit Risk ◽  
Ownership Structure ◽  
Commercial Banks ◽  
Capital Adequacy ◽  
Bank Risk ◽  
Capital Adequacy Ratio ◽  
Asset Quality ◽  
Relationship Of ◽  
The Relationship

This paper investigates the relationship of ownership structure, listed status and risk by using regression analysis based on the relevant data of Chinas commercial banks. Three main results emerge. First, compared to the state-owned banks, foreign-owned commercial banks exhibit better asset quality, lower credit risk and higher capital adequacy ratio; city commercial banks have lower credit risk and joint-stock commercial banks have lower credit risk and capital adequacy ratio. Second, listed status improves the asset quality and capital adequacy ratio. Finally, we also find that the listed status significantly moderates the relationship between ownership structure and risk. In conclusion, this study provides a theoretical reference for the reform of Chinas commercial banks.

scholarly journals Developments in Risk Management in Islamic Finance: A Review

2019 ◽  
Vol 12 (1) ◽  
pp. 37 ◽  
Author(s):  
Naseem Al Rahahleh ◽  
M. Ishaq Bhatti ◽  
Faridah Najuna Misman
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Negative Impact ◽  
Risk Mitigation ◽  
Risk Level ◽  
Islamic Banks ◽  
Bank Capital ◽  
Weak Support ◽  
Governance Practices ◽  
Contract Structure

The purpose of this study is to review recent developments pertaining to risk management in Islamic banking and finance literature. The study explores the fundamental features of risks associated with Islamic banks (IBs) as compared to those associated with conventional banks (CBs) in order to determine the extent to which IBs engage in effective risk mitigation. The study includes a consideration of the major studies in which the fundamental features of Islamic banks and finance (IBF) and the main characteristics of risk management in IBs are analyzed in comparison with those of CBs. Specifically, these two kinds of banks are compared in relation to the types of risks faced, the characteristics of those risks, and the nature and extent of exposure to those risks. A tabular methodology approach is used in concert with a comparative literature review approach for the analysis. The results show that there is weak support for Shariah-based product development due to the lack of risk mitigation expertise in IBs. The conclusion presented is that in comparison with CBs, IBs are more risk-sensitive due to the nature of their products, contract structure, legal costing, governance practices, and liquidity infrastructure. Furthermore, the determinants of the credit risk of Islamic banks in Malaysia (MIBs) are examined. Overall, bank capital and financing expansion have a significant negative impact on the credit risk level of IBs in Malaysia.

scholarly journals Bank Risk Capital and Its Effectiveness in Selected Euro Area Banking Sectors

2021 ◽  
Vol 14 (11) ◽  
pp. 555
Author(s):  
Irena Pyka ◽  
Aleksandra Nocoń
Keyword(s):  
At Risk ◽  
Euro Area ◽  
Banking Sector ◽  
Research Question ◽  
Capital Adequacy ◽  
Bank Risk ◽  
Bank Capital ◽  
Risk Capital ◽  
Operational Effectiveness ◽  
Capital At Risk

Risk capital or capital at risk (CaR) refers to the amount of capital set aside and maintained by banks to cover different types of risk. For banks, it is used as a buffer against claims or expenses in the event that ordinary capital is not enough to cover them. Thereby, risk capital can also be recognized as risk-bearing capital or surplus funds. Risk capital may generate very high costs, but on the other hand it protects against insolvency. That’s why a bank needs to find the ‘Gold mean’—the optimal value of risk capital that will not lower its efficiency, but still ensure financial security. The main objective of the study is identification of interdependencies between bank risk capital and effectiveness of the aggregated Eurozone banking sector and selected national banking sectors of the euro area. The paper tries to answer the research question whether the risk capital supports or lowers banks’ operational effectiveness. The adopted research hypothesis stated that there is a positive correlation between profitability and size of bank risk capital. To verify the hypothesis regression models were used. The results indicate that the size and structure of bank capital impact on the credit institutions’ effectiveness in the analyzed banking sectors, however with different intensity. Thereby, the article fulfils a research gap in the field of research studies that take into account how capital at risk and specific capital adequacy regulations may impact on a bank’s efficiency.

scholarly journals How Big The Role of Credit Risk, Liquidity Risk and Capital Have an Effect On The Profitability of The 10 Largestt Bank in Indonesia

2021 ◽  
Vol 2 (1) ◽  
pp. 179-189
Author(s):  
Irawati Junaeni
Keyword(s):  
Credit Risk ◽  
Fixed Effects ◽  
Liquidity Risk ◽  
Capital Adequacy ◽  
Bank Capital ◽  
Return On Assets ◽  
Panel Data Regression ◽  
Analysis Technique ◽  
Capital Adequacy Ratio ◽  
Data Processing Tool

The purpose of this research is to analyze how the effect of credit risk, liquidity risk, bank capital, on profitability. The ratio used to measure credit risk using the Non Performing Loan (NPL), liquidity risk using the Loan to Funding Ratio ( LFR) and bank capital using the Capital Adequacy Ratio (CAR). The sample in this study were the 10 largest banks in Indonesia based on total assets. The analysis technique used in this research is panel data regression with fixed effects. The data processing tool used in this study is the Eviews 10 program. The partial test results show that the variables of credit risk and bank capital have an effect on profitabilityas measured by Return on Assets (ROA). Credit risk shows a negative and significant effect on profitability. And bank capital has a positive and significant effect on profitability. Meanwhile, liquidity risk has no significant effect on profitability. Simultaneously, the variables of credit risk, liquidity risk and capital have an effect of 90.17% on profitability. The remaining 9.83% was influenced by other factors not examined in this study

scholarly journals Loan Loss Provision and Risk-Taking Behavior of Commercial Banks in Pakistan: A Dynamic GMM Approach

2019 ◽  
Vol 11 (19) ◽  
pp. 5209 ◽  
Author(s):  
Changjun Zheng ◽  
Shumaila Meer Perhiar ◽  
Naeem Gul Gilal ◽  
Faheem Gul Gilal
Keyword(s):  
Interest Rate ◽  
Credit Risk ◽  
Risk Taking ◽  
Commercial Banks ◽  
Capital Adequacy ◽  
Bank Risk ◽  
Loan Loss ◽  
Loan Loss Provision ◽  
Capital Adequacy Ratio ◽  
Risk Taking Behavior

The paper analyzes the determinants of the loan loss provision (LLP) of 22 commercial banks in Pakistan from 2010 to 2017. The motive of the research is that LLP is a measure of credit risk as a proxy for bank risk-taking behavior profits and banks’ sustainability. Especially after the occurrence of a global financial crisis. The quantitative research method of data collection from Bureau Van Dijk’s BankFocus portal and the World Bank’s World Development Indicators. Other than considering specific bank variables such as capital adequacy ratio, return on average equity, and government securities, the effects of macroeconomic variable inflation and lending interest rates are explicitly studied. The model of pooled ordinary least squares (POLS), fixed effect (FE), panel corrected standard error (PCSE), and panel data estimation in the form of a general method of moments (GMM) two-step system is used to find the risk-taking behavior of banks in Pakistan. The results obtained by the use of inflation (INF) as an instrumental variable of LLP are highly dependable with a negative impact on loan loss provision. Lending interest rate (LIR) has a positive and significant relationship with LLP and contribute in the study of macroeconomic variables for bank risk-taking, excessive amount of interest rate was not beneficial for banks to earn profits especially during the economic crises. Return on average equity (ROAE) significantly moderates LLP with a negative interaction and helped the bank with profitable operations and save bank from solvency. Capital adequacy ratio (CAR) and government securities (GOV) are insignificant to LLP. The result is robust by measure of endogeneity, and highlights the important role of commercial banks’ sustainability to explain risk-taking behavior in Pakistan with the intention to increase profits after the occurrence of financial crises. The study further contributes to future research on managerial policy and decision making. In summary, the paper on loan loss provision has the capacity to forecast commercial banks’ credit risk for risk-taking in an emerging country.

Part A Regulatory Matters, 6 Capital Adequacy, Liquidity, and Large Exposures

2015 ◽  
Author(s):  
Proctor Charles
Keyword(s):  
Credit Risk ◽  
Risk Mitigation ◽  
Banking System ◽  
Operational Risk ◽  
Market Risk ◽  
Capital Adequacy ◽  
Mitigation Techniques ◽  
The Stability ◽  
Basel 3

This chapter examines the current capital adequacy framework and associated provisions designed to ensure that a bank's business is managed on a prudent basis. It also considers other closely allied topics which may affect the stability of the banking system, namely, liquidity and large exposure requirement. Topics discussed include the origins of the Basel Standards; Basel 2 and Basel 3 rules; the calculation of risk-weighted assets; the nature and effect of credit risk mitigation techniques; market risk; operational risk; and reform on Basel 2.

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