Determinants of Bank Value: Evidence from Nepalese Commercial Banks

Commercial banks have a pivotal role in an economy as they provide easy access for firms to fulfill financing needs and help stimulate economic development. This study aims to analyze the impact of key bank-specific determinants on bank value in Nepalese commercial banks, covering 133 observations from 19 commercial banks over the period 2012/13 to 2018/19. Bank value is measured through M/B and Tobin’s Q. Size, profitability, credit risk, loan, deposit and capital are used as explanatory variables. Panel data regression models have been used for analysis purpose. The results of this paper show that profitability, deposit and loans are major determinants of bank value. Moreover, return on assets and bank deposit have positive effect on bank value whereas loan has negative explaining power on bank value. Thus, this paper concludes that Nepalese commercial banks have to pay special attention for the efficient and effective utilization of assets to increase profits and try to increase the size of deposits to increase loan portfolio. Steps and enforcement actions need to be taken by policy level authorities for effective loan management to minimize credit risk and increase bank value.

Ownership complexity and loan quality: Evidence for listed commercial banks in Vietnam

This paper examines the relationship among aspects of bank ownership complexity, including ownership dispersion and type, and the quality of bank loan portfolio. The data used for analysis is an unbalanced panel consisting of 13 listed commercial banks in Vietnam for the period of 2010 - 2019. The non-performing loan (NPL) ratio is used as an indicator of loan quality. The results showed that ownership dispersion, calculation based on the Herfindahl–Hirschman Index of large shareholding, improves the loan quality. Foreign ownership is also found to have positive impact on the loan quality. However, there is no relationship established between government ownership and loan quality.

The Problems of Increasing the Income and Quality of Assets of Commercial Banks

This article examines the composition of the assets of commercial banks, its profitability, the quality of bank assets and the factors affecting it. In addition, the existing problems were studied through the analysis of the profitability and quality of banks' assets, and conclusions and recommendations were developed to address them. Keywords: asset, income, efficiency, profitability, asset quality, loan portfolio, profit, investment

The Value of Verified Employment Data for Consumer Lending: Evidence from Equifax

The availability of digitally verifiable employment data significantly expands credit access for economically disadvantaged customers, and at the same time, profitably expands lenders’ loan portfolio.

Benchmark test for calculated default probability values derived from the application of rating-based models

Subject. This article deals with the issues of validation of the consistency of rating-based model forecasts. Objectives. The article aims to provide developers and validators of rating-based models with a practical fundamental test for benchmarking study of the estimated default probability values obtained as a result of the application of models used in the rating system. Methods. For the study, I used the classical interval approach to testing of statistical hypotheses focused on the subject area of calibration of rating systems. Results. In addition to the generally accepted tests for the correspondence of the predicted probabilities of default of credit risk objects to the historically realized values, the article proposes a new statistical test that corrects the shortcomings of the generally accepted ones, focused on "diagnosing" the consistency of the implemented discrimination of objects by the rating model. Examples of recognizing the reasons for a negative test result and negative consequences for lending are given while maintaining the current settings of the rating model. In addition to the bias in the assessment of the total frequency of defaults in the loan portfolio, the proposed method makes it possible to objectively reveal the inadequacy of discrimination against borrowers with a calibrated rating model, diagnose the “disease” of the rating model. Conclusions and Relevance. The new practical benchmark test allows to reject the hypothesis about the consistency of assessing the probability of default by the rating model at a given level of confidence and available historical data. The test has the advantage of practical interpretability based on its results, it is possible to draw a conclusion about the direction of the model correction. The offered test can be used in the process of internal validation by the bank of its own rating models, which is required by the Bank of Russia for approaches based on internal ratings.

Exploring the role of corruption and money laundering (ML) on bank’s loan portfolio quality: a cross-country investigation

Purpose Corruption and money laundering (ML) are severe concerns for both developing and developed countries. According to international organizations, such as Transparency International, the Basel Institute on Governance and the International Country Risk Guide, corruption and ML exist in every country. This research aims to investigate the impact of corruption and ML on the loan portfolio quality of banks. Design/methodology/approach From 2013 to 2019, this study used the panel data of 132 countries, including 87 highly corrupt and 45 least corrupt countries: the fixed effect and random effect econometric regression techniques for data analysis. Additionally, this study used the generalized methods of moment technique to check the result’s robustness. Findings This study shows that corruption and ML have diverse relationships with non-performing loans in highly corrupt and low corrupt countries. It is potentially because of the differences in the regulatory structure of a highly corrupt and least corrupt environment. Originality/value To the best of the authors’ knowledge, this study is the first attempt that provides a unique perspective on corruption, ML and its effect on the loan’s portfolio quality of banks. Furthermore, this study suggests that governments in highly corrupt environments develop robust anti-corruption and anti-ML regulations.

Competitive Conditions in Nepalese Commercial Banks

This study aims to analyze the competitive conditions of commercial banks in Nepal. Competition is measured through structural and non-structural measures of bank competition. Data were taken from 21 commercial banks of Nepal using pooled sampling method, including five commercial banks based on the highest total assets and sixteen commercial banks using random sampling. Concentration ratio, Herfindahl-Hirschman Index, H-statistic and Lerner Index measures were used to assess the competitive position of Nepalese commercial banks. Panel data regression model with bank fixed effect and time fixed effect was employed to measure H-statistic and Lerner index. Findings showed the increasing pattern of capitalization and the decreasing trend of non-performing loan ratio, indicating that Nepalese commercial banks have a low possibility of loan default and, are more financially stable. It also showed the declining trend of bank concentration and HHI, suggesting that Nepalese commercial banks are losing their monopoly power and becoming more competitive in recent years. Competition in the loan market was found higher than deposit market competition. Banks have to pay special attention to loan portfolio management rather than deposit collection strategies. This study concludes that the competitive condition of Nepalese commercial banks is monopolistic. Therefore, appropriate strategies might be taken into action to sell financial products and services competitively.

Has previous loan rejection scarred firms from applying for loans during Covid-19?

The concept of the ‘discouraged’ borrower is well documented. In this paper, we consider whether smaller firms in the UK who have been previously rejected for bank loans have been scarred by the experience so badly that even in the presence of two exceptionally generous Covid-19 loan guarantee schemes, they still refuse to make an application. Furthermore, we also consider what happens when they do. As banks have either zero or minimal loss exposure, do they still maintain their normal strict lending protocols or do they relax their standards to fulfil the governments’ objective of supporting struggling businesses through the crisis? Our findings show that 72% of previously rejected borrowers are reluctant to request loans. We find some evidence that previously scarred firms faced such severe liquidity problems that they relaxed their distrust of banks during the Covid-19 crisis. However, their share of the government-guaranteed loan portfolio was slightly lower suggesting that banks were treating each new loan application on its merits. Plain English Summary The Covid-19 crisis hit smaller businesses so hard that even previously rejected borrowers were forced to apply for loans to keep them afloat. Previous loan rejections have not discouraged small businesses in the UK in applying for Covid-19 government-guaranteed loans. Banks have used the loan guarantee schemes to continue to supply loans to small business during the pandemic. Our paper analyses the important phenomenon of borrower scarring and discouragement, when potential debtors are self-excluded from the lending market because they have previous rejections or expect a negative bank response. We consider around 45,000 UK small businesses from 2018 to 2020. On the demand side, we find that the economic shock for small businesses during the pandemic dissipates the scarring effect. Specifically, we find that micro and small businesses had the highest loan demand in the first two quarters of the pandemic (from March 2020). On the supply side, we show that scarred borrowers were not routed onto Covid-19 government-guaranteed loan schemes. These findings show the importance of government-backed lending schemes for small businesses during crisis period.

The mediating role of cost of capital in the relationship between capital structure and loan portfolio quality

PurposeThe purpose of this paper is to establish the mediating role of cost of capital in the relationship between capital structure and loan portfolio quality in Uganda's microfinance institutions (MFIs).Design/methodology/approachA cross-sectional research design was adopted to collect data and partial least squares structural equation modelling was used to test the study hypotheses.FindingsCost of capital partially mediates the relationship between capital structure and loan portfolio quality. Hence, cost of capital acts as a conduit through which capital structure affects loan portfolio quality.Research limitations/implicationsCost of capital was generalized as financial and administrative costs. The impact of costs like dividend pay-outs, interest rates and/or loan covenants on loan portfolio quality could be investigated individually.Practical implicationsMFIs should be vigilant about loan recovery by using strategies like credit rationing to ensure timely repayments.Originality/valueThe study contributes to the ongoing academic debate by identifying the significant indirect role of cost of capital in explaining loan portfolio quality.

Credit Risk Management and Sub-Standard Loans of Commercial Banks in Nigeria: A Panel Data Analysis

This study examined the effect of credit risk management on sub-standard loan portfolio of quoted commercial banks in Nigeria. Cross sectional data was sourced from financial statement of commercial banks and Central Bank of Nigeria Statistical bulletin from 2009-2018. Sub-standard portfolio was used as dependent variable while bank risk diversification, Basel risk compliance, risk transfer were used as independent variables. Panel data methodology was employed while the fixed effects model was used as estimation technique at 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit. Panel unit roots and panel cointegration analysis were conducted on the study. The empirical results proved that 41.7 per cent variations in the sub-sub-standard loans’ portfolio was explained by credit risk management. From the random effect results, bank risk transfer and Basel compliance have positive relationship with sub-standard loan portfolio while risk bank risk diversification have negative relationship with sub-stand ad loan portfolio of the commercial banks. We recommend that management of the commercial banks should be pro-active and devise effective measures of managing credit risk to reduce the incidence of sub-standard loans. The monetary authority should monitor the Basel compliance rate and policies of the commercial banks to credit risk management