Bank Performance and Noninterest Income: Evidence from Countries in the Asian Region

Noninterest income (NII) is income generated by banks from sources other than interest payments. Studies conducted on the relationship between NII and bank risk for the USA and Europe have found that emphasis on income diversification lowers risk in European banks but exacerbates it in American banks. Current research on Asian banks has not led to a coherent view of the relationship between NII and bank risk. We employ data over 25 years for 24 Asian countries to examine this relationship. Using the GMM estimation approach we estimate equations for two time-periods, 1996–2007 and 2008–2018, to examine the NII-bank risk relationship in the presence of some controlling financial, macroeconomic and policy variables. Our results show that non-interest income worsens bank risk for all 24 countries as well as for sub-groups of countries. We also find that, by and large, economic growth improves bank risk while inflation above a threshold worsens it. Finally, our proxy measure for monetary policy improves bank risk though fiscal policy seems to have no effect.

Debt to GDP Ratio from the Perspective of MMT

In this note we examine the debt to GDP ratio from the perspective of MMT (Modern Monetary Theory) by a simple macroeconomic model with savings by government bonds instead of money. Mainly we will show the following results. 1) In order to maintain full employment under economic growth, the budget deficit, including interest payments on government bonds, must be positive; and if the budget deficit is smaller than this value, there will be recession with involuntary unemployment. 2) Under full employment the debt to GDP ratio approaches to a finite value over time. 3) In the underemployment case the national income is determined by the budget deficit. 4) The excessive budget deficit causes inflation. 6) In order to recover full employment from recession we need budget deficit larger than that when full employment is maintained. 5) The budget deficit, including interest payments on government bonds, equals the increase of the savings of consumers between periods (generations); and this result holds whether we have full employment or not, whether we have inflation or not. Then, the ratio of the national debt to GDP in a period is smaller than one, and even if one period constitutes of several years, the debt to GDP ratio in a year is finite.

The Importance of Capital Investment and Debt Financing in Deriving Shareholders’ Value; A Literature Survey

Shareholders’ value is the most important goal and an integral part of the companies’ strategic decision-making process. When a corporate performs well and creates value for its shareholders, it benefits the whole economy. The past studies concluded that efficient decision making in the areas of capital investments and debt financing can ensure high financial performance and shareholders’ value creation. This paper thoroughly reviews the literature on impact of capital investment and debt financing decisions on shareholders’ value. Capital investment is a very important managerial decision because it increases company's economic profit. However, past studies have found that not every time the capital investment results in increasing the value as it may vary with the level of investment. Moreover, debt financing lowers the free cash flows due to the payment of fixed interest payments, thus lowering shareholders' return and value. Therefore, this paper recommends the need of further research to better understand the effect of capital investment and debt financing decisions on shareholders’ value.

The impact of financing policy on the cost of debt

The cost of debt is a key element to define the amount of the regular interest payments of a company and its business value. It is used for indicators that warn of the economic crisis, which is relevant for the countries where most companies are financially dependent on liabilities. The formalized criteria for the types of financing policy, improved procedure for the cost of debt calculation make it possible to reveal policy with the capital structure that minimizes the cost of debt.The study is based on Ukrainian food processing companies for the period 2013–2020. The studied database was distributed by the types of financing policies: 22% of the cases have a conservative policy, 15% – moderate, 26% – aggressive, 37% – super-aggressive. The results show that the highest weighted cost of debt (24.1%) belongs to the conservative policy, which replaces negative equity by the expensive long-term debts, as well as super-aggressive policy (20.8%) with trade payable that is near half of the capital, and long days payable outstanding. A company can reduce the cost of debt relying on non-interest-bearing liabilities and trade payable if its days payable outstanding are kept at the industrial level or below. Moderate and conservative financing policies, which are based on equity and avoid debts, provide the lowest weighted cost of debt: 2.1% and 1.2%.Thus, choosing the desired type of financing policy for the company, it is possible to form a capital structure that will reduce the cost of debt.

Debt for nature swaps – which nature, how much and who pays?

Financially viable means to conserve biodiversity are urgently needed. We analyze how debt-for-nature swaps could conserve currently unprotected biodiversity priority-areas for six biomes in 67 countries under the debt service suspension initiative related to COVID19. Using novel methods and data, we find that the 67 countries hold over 22% of global priority-areas, yet 82.96% is unprotected. For 35 of the 67 countries, swapping 0.1% of public debt could conserve 100% of unprotected priority-areas. By swapping 5.09% of these countries’ total public debt (USD26.5 billion) in a pooled swap, 100% of priority-areas could be protected across the countries. Management costs could partly be covered through re-routed interest payments within the countries, with further annual funding of USD0.5-3.5 billion required. One-Sentence Summary: We develop a framework for efficient application of debt-for-nature swaps to maximize biodiversity conservation.

Searching for new fiscal rules in the euro area: a new proposal

While the European Union (EU) fiscal rules are suspended in the years 2020–2022, new rules are in the making and might be activated in 2023. If the old rules were used again, massive austerity would be required in the face of the strongly elevated level of public debt and the gap to the 60 per cent debt cap in the EU Treaty. A new proposal is suggested in this article which requires only small changes in the Treaty and/or the Fiscal Compact, but a strong overhaul in secondary law, that is, the Stability and Growth Pact. The key ideas are to use net interest payments, as a share of GDP, as the new metric for defining debt sustainability rather than gross public debt. This would allow the adjustment of the rules to changing monetary environments, especially interest-rate levels, and changing differentials between interest rates and growth rates. This way, much more fiscal space would be generated both for higher-debt and lower-debt member states and the entire euro area.

FISCAL SUSTAINABILITY AND ECONOMIC GROWTH: A CASE STUDY OF UTTAR PRADESH IN THE 21ST CENTURY

Fiscal sustainability refers to the maintenance of public finances within an affordable and serviceable limit by rationalising debt and deficits within tolerable limits. India, since the time of independence has been taking assistance of debt and deficits to meet its shortages in revenue for the purpose of development and growth. For quite a long time, the concept of fiscal prudence was not given due importance of its role in ensuring long-term sustainable growth. It was only after the major economic crisis of 1990s, that several reforms were initiated targeting at longer duration targets. As a part of series of these reforms, FRBM Act was implemented in 2003 to keep a check on the fiscal indicators of the country especially the revenue deficit, fiscal deficit and debt-GDP ratio to contain the situation of growing fiscal indiscipline. The act was implemented both at the Centre and State level. It has almost been a decade and a half since its implementation. In the course of this duration, some states focused more on the growth parameters while other states focused more on the fiscal sustainability which in turn will initiate growth according to the ideology behind it. The present study specifically makes an analysis of the policies adopted by the state of Uttar Pradesh to establish fiscal sustainability. An investigation has been done to evaluate whether fiscal sustainability measures have adversely affected the growth of the state? The study concludes that although Uttar Pradesh is the most populous and one of the largest state, area wise, it could not create an investment atmosphere for investors due to lack of infrastructure and other facilities because of its focus on fiscal sustainability. KEYWORDS: Fiscal Sustainability, FRBM Act, debt-GSDP ratio, fiscal deficit, interest payments.

Wanprestasi pada Kredit Perbankan Akibat Pandemi Coronavirus Disease 2019

This research discusses the concept of default on bank credit due to the Coronavirus Disease 2019 (Covid-19) pandemic. In order to maintain the national economic growth which is decreasing due to the Covid-19 pandemic, POJK No. 11/2020 juncto POJK No. 48/2020 regulates the provision of stimulus policies for bank debtors who experience difficulties in fulfilling their obligations to banks. After the enactment of this policy, the debtor is declared to be in default if there is an arrear that exceeds 90 days because the debtor does not meet the requirements for the accuracy of principal and/or interest payments in Article 3 paragraph (1) POJK No. 11/2020 juncto POJK No. 48/2020, so that debtor credit cannot be restructured. Due to the unsuccessful restructuring, based on Article 5 paragraph (1) POJK No. 11/2020 juncto POJK No. 48/2020, the credit quality remains in the non-performing loan category. The legal measures that can be taken by banks are through the efforts to save credit by credit restructuring. This study taken an example of a restructuring scheme at BRI Bank, by using the method of lowering interest rates, changes in principal installment scheduling and extension of the credit period. If the loan restructuring is not successful, then the bank needs to handle it by credit settlement efforts.Keywords: Default; Bank Credits; Covid-19.Penelitian ini membahas mengenai wanprestasi pada kredit perbankan akibat pandemi Coronavirus Disease 2019 (Covid-19). Untuk menjaga pertumbuhan perekonomian nasional yang sedang menurun akibat pandemi Covid-19, diterbitkan POJK No. 11/2020 juncto POJK No. 48/2020 yang mengatur mengenai pemberian kebijakan stimulus bagi debitur bank yang mengalami kesulitan untuk memenuhi kewajibannya kepada bank. Pasca berlakunya kebijakan tersebut, debitur dinyatakan melakukan wanprestasi apabila, terjadi tunggakan yang melebihi 90 hari dikarenakan debitur tersebut tidak memenuhi persyaratan ketepatan pembayaran pokok dan/atau bunga dalam Pasal 3 ayat (1) POJK No. 11/2020 juncto POJK No. 48/2020, sehingga kredit debitur tidak dapat dilakukan restrukturisasi. Oleh karena tidak berhasil direstrukturisasi, berdasarkan Pasal 5 ayat (1) POJK No. 11/2020 juncto POJK No. 48/2020 maka kualitas kredit tetap dalam kategori kredit bermasalah. Upaya penanganan yang dapat dilakukan bank yaitu melalui upaya penyelamatan kredit dengan melakukan restrukturisasi kredit. Penelitian ini mengambil contoh skema restrukturisasi pada Bank BRI, yaitu dengan menggunakan metode penurunan suku bunga, perubahan penjadwalan angsuran pokok dan perpanjangan jangka waktu kredit. Jika restrukturisasi kredit tidak berhasil, maka dilakukan upaya penanganan melalui upaya penyelesaian kredit.Kata Kunci: Wanprestasi; Kredit Perbankan; Covid-19.

Developing nations risk backsliding in COVID recovery

Significance These dynamics harm developing states disproportionately and are driving a rise in global poverty. Traditional recovery policies tend to be harmful for the environment; these are especially problematic today, because the time for decisive action on climate change is limited. Impacts The UN saw developing states growing by 5% in 2015-30 at the SDG launch; this was not met by 2020 and is highly unlikely by 2025. In low-income states, debt interest payments doubled as a share of public revenue from 2008-17 and will rise more, squeezing other spending. Climate benefits of less activity were short-lived in past crises, and rebounds climate-unfriendly; clear climate targets should help now.

The Effect of Government Expenditure on Economic Growth in Indonesia

This study aims to examine and analyze the effect of economic growth classified as personnel expenditure, material expenditure, capital expenditure, interest payments, subsidies and social expenditure in Indonesia. The data in this study are time series data from 2005 to 2019. The hypothesis test uses the multiple linear regression method with SPSS 26. The results of testing government expenditure variables during the period 2005 to 2019 shows that components of central government expenditure include personnel, material, capital, interest payments, subsidies and social expenditure have a significant effect simultaneously on economic growth. There is a significant positive effect on the relationship between the variable personnel expenditure and material expenditure on economic growth. There is a significant negative effect on the relationship between the variable capital expenditure on economic growth. The other three variables, which include debt interest payments, subsidies and social expenditure, do not have a significant effect on economic growth.