Capital Structure and Bank Performance: Empirical Evidence from Ghana

The aim of this paper is to examine the impact of capital structure on profitability of commercial banks in Ghana. The study used a sample of 21 commercial banks over the period 2000–2014 using panel corrected standard errors and two‐stage least‐squares estimation approaches. The results show that bank capital structure measured as capital‐to‐asset ratio is a robust and positive driver of bank performance (profitability) measures (return on assets and net interest margin). Additionally, the results further indicate that share of customer demand deposit positively affects bank profitability. The positive relationship between the capital‐to‐asset ratio and performance provides support for the bank capitalization policy implemented by the Bank of Ghana. Also, the findings provide evidence in support of the recent upsurge in bank short‐term deposit mobilization strategies and promotions by commercial banks in the country to enhance their deposit base.     

EXPLAINING THE MARKET POWER OF GHANAIAN BANKS1

A competitive banking system helps lower transaction costs and risks. It also helps make financial markets more efficient. In Ghana however, observers believe that the banking industry is not competitive and point to the huge spread between bank lending and borrowing rates as evidence. The Ghanaian banking industry is analysed for evidence of market power by computing the Lerner Index of banks using quarterly data from 2001 to 2006. The evidence is that Ghanaian banks possess market power. Factors that significantly explain the market power of Ghanaian banks are: bank size, efficiency of banks with respect to staff costs, the macroeconomic environment and time.     

Why do commercial banks hold government bonds? The case of Japan

We investigate the determinants of the demand for Japanese government bonds (JGBs) by commercial banks in Japan. In particular, by estimating portfolio equations for JGB demand and bank loans, based on a panel data set from the late 1990s to the 2000s, we rigorously test the popular assertion that the long stagnation of the real economy caused a shift in the portfolios of commercial banks from bank lending to JGBs. We find that the popular assertion is not empirically supported. Rather, the portfolio shift from loans to JGBs has been caused by a fall in the ratio of the loan rate to unit lending costs, or the bank’s price–cost margin for lending.     

Dynamics of Money Market Interest Rates in Ghana: Time-Frequency Analysis of Volatility Spillovers

As the second longest practicing inflation targeting economy in Africa, it is of interest to investigate the degree to which policy interest rate influences other money market rates so as to gauge the overall effectiveness of monetary policy transmission in Ghana. This study evaluates the degree of connectedness among money market rates and also determines the most dominant money market rate(s) in Ghana. The basic finding is that the monetary policy rate has a low-to-moderate influence on volatility dynamics of other money market rates in Ghana across historical time-interval and time-frequency domains. This is a reflection of a generally weak capability of policy interest rate to drive other market rates in Ghana. Both monetary policy rate and Treasury bill rate are net transmitters of shocks, while interbank, lending and saving rates are net receivers of shocks in the money market. However, the Treasury bill emerges as the largest shock transmitter in the money market, across all forecast horizons and analytical domains. The lending rate is the largest shock recipient in the money market, largely from the Treasury bill rate which suggests ample evidence of fiscal dominance in Ghana. The study accentuates the exigency for monetary and fiscal policies to expeditiously address the domestic structural bottlenecks, especially in the financial sector and the fragile fiscal profile, in order to strengthen policy transmission in Ghana.     

The lending channel of monetary policy in Indonesia

This study evaluates the bank lending channel of monetary policy in Indonesia by using quarterly bank-level data over the period of 2005-2016. I find that the lending channel of monetary policy works for all banks, both large and small. The results suggest that higher capital buffers and better liquidity positions moderate the impact of changes in monetary policy on credit growth for large banks, while capital buffers and liquidity positions do not alter the strength of the lending channel for small banks. The findings indicate that the central bank can use prudential instruments affecting capital buffers and liquidity positions for managing the strength of adjustment in the monetary policy interest rate on bank credit growth.     

Monetary Aggregates Targeting,Inflation Targeting and Inflation Stabilization in Ghana

The central bank of Ghana (BoG) has operated monetary aggregates targeting and inflation targeting since the 1980s, to ensure enhanced output growth, low unemployment and stable, low inflation. Under inflation targeting, the inflation rate averaged 13.26 per cent per annum between 2007 and 2015, compared with 29.22 per cent per annum under monetary aggregates targeting. The relatively lower inflation rates notwithstanding, an average inflation rate of 13.2 per cent per annum is far above the medium‐term target of 8 per cent. This paper has examined the effectiveness of monetary aggregates targeting and inflation targeting in keeping inflation at moderate levels. The autoregressive distributed lag (ARDL) model was applied to the data covering the period 1970–2015. The results show that monetary targeting has steered inflation to moderate levels only in the short run while inflation targeting has maintained low inflation rates in both short run and long run. But neither regime has kept inflation at stable levels and within the target band, due to the sluggish transmission of broad money supply and prime rate changes to inflation. We implore the monetary authorities to strengthen the institutional setup for steering short‐term interest rates in Ghana. They should also enhance the BoG Act 2002 (Act 612), to develop secondary anchors and rules around output, money supply and fiscal deficit. Finally, the monetary policy committee should monetary policy credibility and transparency through strengthening its communication framework.     

Chinese Stylized Sterilization： The Cost-sharing Mechanism and Financial Repression

This paper attempts to explain why sterilized intervention was so successful and sustainable in China during the first decade of the 21st century.We argue that the Chinese Government established a sterilization cost-sharing mechanism among the People’s Bank of China, commercial banks and the household sector.On the one hand,Chinese commercial banks have to assume some of the sterilization costs by purchasing low yield central bank bills and maintaining high levels of required reserves.On the other hand,Chinese households assume some of the sterilization costs by bearing negative real deposit interest rates.The costsharing mechanism under financial repression prevents a huge quasi-fiscal loss by the People’s Bank of China as well as high inflation.However,Chinese households have become victims of this financial repression.Faced with the pressure of changing the growth model from investment-driven to domestic consumption-driven,the interest rate will have to be liberalized eventually,which will,in turn,make sterilized intervention unsustainable.     

Interest Rate Pass‐through in Malawi: Implications for the Effectiveness of Monetary Policy

This study investigates the interest rate pass‐through in Malawi and its implications on monetary policy effectiveness. Using the cost‐of‐funds approach and monthly data from 2009 to 2015, an autoregressive distributed lag model is fitted. Results show that there is a near complete pass‐through to the lending rate but not the savings rate. The magnitude of the pass‐through is relatively higher under smaller banks. The results suggest that the structure of the banking industry matters. Market power is important in understanding the variation in lending and savings rates across banks. Overall, short‐term rates as operating targets are consistent with inflation targeting in Malawi.     

Impact of the Emerging Financial Holding Company Model on Small Business Borrowers' Financial Welfare: Contemporary Evidence from Nigeria Based on the Monti‐Klein Approach

This study exploits the adequacy of the Monti‐Klein model to analyse the banking firms' lending behaviour and uses the geometric lag analytic model to detect the lifespan of bank conglomeration impacts on small business financial welfare. We find that, although the impact of emerging conglomerate banks on lending to small businesses is significantly negative (δ = ?0.6897; p < 0.01), the effect reverses to a pre‐conglomerate positive status within one year. Hence, bank conglomeration does not negatively affect the financial welfare of small business borrowers in the long run. Contrary to the widespread belief and fear, the negative effects are not permanent. Large banks are feared to have no time for mid‐sized businesses. We find, however, that mere increases in size, as may be caused by economic or internal growth, do not pose a threat to small businesses. Large‐sized banking firms positively and significantly correlate with small and predictable risks (δ = 1.7935; p < 0.01). Hence, contrary to what regulators fear, there is no real issue surrounding the idea that building diversifying banks will influence small business loans negatively. What matters is the means through which large banks emerge. Therefore, regulators ought to exercise caution so that they do not discourage their emergence.     

What Drives Cost Efficiency of Banks in China?

This study uses stochastic frontier analysis to examine the factors that influenced cost efficiency of banks in China from 2005 to 2013. The results indicate that policy variables, such as the reserve requirement ratio, the interest rate spread and open market operations by the People's Bank of China, are effective in improving the cost efficiency of banks, but shadow banking variables may reduce cost efficiency. Among the various bank types, city commercial banks appear to be the most efficient and foreign banks are the least efficient. The present study suggests that policy‐makers can have a positive influence on bank cost efficiency by adjusting macro policy variables on different types of banks and by requiring more information on the shadow banking activities to improve monitoring.     

Inflation Targeting in ASEAN‐10

The paper addresses the empirical question of whether economies that do not systematically target inflation (non‐inflation targeters) experience higher exchange rate volatility as compared with inflation targeters in 10 countries of the Association of Southeast Asian Nation (ASEAN) from 1990 to 2010. The paper examines the role of real exchange rate, exchange rate volatility and the reaction functions of central banks using dynamic panel estimation techniques. The results indicate that the output gap offers more useful information than the inflation gap in setting interest rates for inflation targeters, implying that the real term is more important than the nominal term. In turn, this suggests that an increase in interest rate can be wielded swiftly to reduce real gross domestic product and suppress inflation. The real exchange rate appears as a weaker determinant in setting interest rates for non‐inflation targeters. Inflation targeters experienced lower exchange rate volatility compared with non‐targeters in the ASEAN, which implies that implementation costs to their domestic economies may be marginally lower. Meanwhile, the non‐targeters follow a mixed strategy as both the inflation and real exchange rate are used as instruments to set the interest rates.     

通胀预期管理下中央银行沟通的有效性研究——基于中国2003～2010年数据的实证分析

有效管理通货膨胀预期已成为中央银行货币政策调控的重要任务之一。近几年,世界上很多国家通过实施中央银行沟通引导市场预期,实现有效的货币政策调控。本文通过考察通货膨胀预期和中央银行沟通及其他经济变量之间的相关关系,分析中央银行沟通能否有效引导市场通胀预期。结果显示,由于缺乏系统性,中央银行沟通对市场预期的引导作用仍不如其他经济变量,但国内中央银行沟通对市场通胀预期的影响是显著的。其中,相对书面沟通,口头沟通对通胀预期的影响更为显著。在目前较强的通胀预期背景下,系统实施中央银行沟通将对未来通胀预期的管理起到积极作用。     

Commodity prices and monetary policy in emerging East Asia during the global financial crisis

In the first phase of the global financial crisis, rising inflation was a major concern for emerging East Asian central banks. Coupled with a slowing US economy, regional central banks faced a monetary policy dilemma of either addressing higher inflation or supporting moderate growth. Higher food and fuel prices were the major drivers of headline inflation. Their causes, however, were a confluence of mutually reinforcing cyclical and structural factors. Understandably, different economies faced a different balance of risks between price stability and growth; but to attribute the inflation to supply shocks alone was misleading. This was unsettling given that inflation and inflation expectations were on the rise, and without much credibility, the reluctance of many central banks to raise interest rates risked repeating the mistake the advanced economies made in the 1970s. Without credibility, inflation expectations are unlikely to be well anchored. To gain credibility, a central bank must ‘walk‐the‐talk’, and understandably it must have the autonomy to do so.     

Common Auditors and Private Bank Loans*

We show that when banks and borrowers share the same audit firm, borrowers receive lower interest rates, after controlling for potentially confounding director connectedness. The common auditor effect is observed only for opaque borrowers, and is greatest when the same audit engagement office audits the bank and borrower. A common auditor connection also matters more for longer‐tenured auditors, for geographically proximate borrowers, and when the syndicate involves fewer lenders. The effect does not hold for auditors recently sanctioned by the PCAOB. Finally, the interest rate discount is not the consequence of homophily or biased decision making, based on a comparison of postloan performance of firms with common auditor loans versus those with noncommon auditor loans.     

International banking and transmission of the 1931 financial crisis

In May to July 1931, a series of financial panics shook central Europe before spreading to the rest of the world. This article explores the role of cross‐border banking linkages in propagating the central European crisis to Britain and the US. Using archival bank‐level data, the article documents US and British banks’ exposure to central European frozen credits in 1931. Central European lending was mostly done by large and diversified commercial banks in the US and by small and geographically specialized merchant banks/acceptance houses in Britain. Differences in the organization of international bank lending explain why the central European crisis disturbed few US banks but endangered many British financial institutions.     

Some Evidence on the Relevance of Bank Behaviour for the Lending Channel in The Netherlands

This paper studies the behaviour of Dutch banks. We test the adjustment of banks' balance sheets in times of monetary policy changes during the period 1957–1991. As a reaction to a policy change, banks basically have two alternatives to adjust their net money creation: (1) sell securities in public capital markets, and/or issue long-term liabilities, and (2) change domestic loan supply. If banks opt for the latter a lending channel may be relevant, even in a small open economy with a fixed exchange rate and a high degree of international capital mobility. We test for the effectiveness of both indirect and direct instruments of monetary policy. It turns out that in case of changes in the official interest rate, the volume of bank loans is not affected and that banks display a kind of buffer-stock behaviour by diminishing their publicly traded assets. In situations with quantity restrictions on the growth of net money creation, however, the volume of loans is affected significantly when the quantity restriction is withdrawn thereby fulfilling a necessary condition for the bank lending channel to be effective.     

中国建筑企业入世后的机遇与挑战及应对措施

本文从银企关系出发 ,首先介绍了国外银行体系进行中小企业借贷的传统做法———关系借贷 ,并对关系借贷进行了成本和收益分析。文章的后半部分对我国银行系统如何界定关系借贷做了一定的阐述。关系借贷有利于商业银行建立新型的银企关系 ,加强银行的风险控制。我们要站在双方     

Monetary policy transmission through the bank lending channel in Thailand

This paper investigates the strength of the bank lending channel in the transmission of monetary policy in Thailand. Bank behavior is captured by quarterly balance sheet data for ten commercial banks of diverse size for the period 2007-2016. Based on a flexible form profit function, bank supply and demand equations are estimated that capture lending and funding choices. The estimation results are used to derive time-dependent supply and demand elasticities which are then combined with estimates of pass-through from the policy rate to retail rates to simulate the dynamic impact of a monetary tightening on bank portfolio allocations. Due to pass-through differentials among retail interest rates, an increase in the policy rate is shown to raise the cost of loan-production relative to the return on loans, thereby motivating banks to contract their lending. Small banks show a greater degree of loan contraction than large banks because large banks are better able to fund continued lending through debt issuance. Because the Thai economy relies heavily on bank loans, these findings suggest that the bank lending channel is an important conduit for the transmission of monetary policy in Thailand.     

Paying back to borrow more: Reputation and bank credit access in early America

The birth of commercial banking in New England after the American Revolution provides an important case to examine banking development under asymmetric information. Similar to credit markets in developing countries today, bank borrowers of early America usually had little or no collateral. This paper uses a unique data set based on loans between 1803 and 1833 for Plymouth Bank to examine bank lending policies in the absence of collateral. Empirical evidence suggests that borrowers with little collateral established their credit-worthiness through repeated interaction with banks.     

Bank financial structure in pre-crisis East and Southeast Asia

Seeking evidence on the role of bank governance in the 1997 crisis, we study financial structure and bank performance from 1987 to 1997. Financial performance ratios (capital adequacy, liquidity, profitability, and loan preference) are regressed on structural variables (bank assets, net income, administrative expenses, and time), focusing on banks’ management efficiency and financial performance. During financial liberalization, loan-preference ratios were higher, perhaps signaling more risk; so were capital-adequacy ratios. Capital adequacy falls, then rises as management size increases; profitability behaves oppositely, indicating diminishing returns. Thailand’s, Korea’s and Indonesia’s banks show stronger lending preference but weaker profitability; possible harbingers of crisis.