On the profitability of commercial banks: the Sri Lankan case

This study determines the factors affecting the profitability of licensed commercial banks (LCBs) in Sri Lanka, including the effect of the prolonged conflict which ended in 2009. Using an error correction model together with data for the period 2006–2014 of 10 major LCBs, the results reveal that, in the short run, capital and liquidity have a positive effect on bank profitability and default loans, interest margin (IM), operating cost, and interest rates (IRs) have a negative effect. In the long run, bank profitability is significantly impacted by default loans, IM, real GDP, inflation, IRs, capital, operating cost, and conflict. The ending of the prolonged conflict has significantly contributed to improved bank performance.     

Surplus liquidity,central bank losses and the use of reserve requirements in emerging markets

Since the turn of the millennium, stocks of foreign reserves held by central banks in many emerging markets and developing countries have exceeded currency in circulation. To steer money market rates, these central banks have been absorbing liquidity from, rather than providing it to, the banking sector in their regular monetary policy operations. When interest rates in countries with major reserve currencies are low, the yield on foreign reserves is low. A higher interest rate on liquidity‐absorbing operations may expose central banks to losses. Although a central bank is not a profit‐maximizing institution, central bank losses can undermine the independence of the central bank. Using data for a large panel of central banks, this paper provides some evidence that central banks tend to apply low‐remunerated reserve requirements when profitability is at stake.     

中国商业银行从事非传统业务的决定因素

非传统业务对银行整体资产报酬率有正向影响,经营风格较为稳健、传统业务盈利能力和流动性较差的银行会更多地从事非传统业务。不同所有权对非传统业务有显著影响:城市商业银行、外资银行均比四大国有商业银行在非传统业务上开展得好,但银行所有权变化的选择效应及动态效应均不显著。     

外资银行进入对我国银行效率影响的实证分析

本文选取我国银行市场上占主要地位的14家银行1994-2004年的面板数据,就外资银行进入对我国银行业效率影响进行了实证分析.实证结果表明:外资银行的进入使得国内银行的流动性、非利息收入、经营费用和资产收益率降低,并使其资产质量下降,风险增加,但是技术外溢效应以及对国内银行盈利性的影响并不显著.而且,金融业的对外开放对国有银行造成的冲击小于股份制银行.本文还根据实证分析结果,提出相应的政策建议.     

Banks' Capital Structure and the Liquid Asset – Policy Implication of Taiwan

Banks' size, liquidity and profitability are the main determinants of their capital ratios in Taiwan. Large banks implicitly substitute bank capital for regulator's capital and banks mainly depend on internal cash flows for capitalization. However, medium-sized banks in Taiwan use liquidity as a substitute for bank capital, and small banks with low liquidity tend to have lower capital ratios. Regulators should pay close attention to these banks since they may be undercapitalized.     

Asset quality,non-interest income,and bank profitability: Evidence from Indian banks

This paper investigates whether a shift toward non-interest income activities improves the profitability of Indian banks and, if so, how it varies across ownership groups and banks with different asset qualities. Our findings show that higher share of non-interest income yields higher profits and risk-adjusted profits; in particular when banks are involved in more trading activities. The results indicate that private foreign banks earn more risk-adjusted profits compared to public sector and private domestic banks. Furthermore, we also find that income diversification benefits more to the banks that have lower asset quality compared to the banks that have higher asset quality. The findings are insensitive to dynamic panel data estimations and alternative sample specification. The results of this paper provide valuable insights for policymakers, and conclude that ensuring diversification activities enhances bank profitability, in particular for the banks that have lower asset quality.     

Falling under the control of a different type of owner:risk-taking implications for banks

European banks have experienced significant changes in the type of entity that owns them (another bank, an individual or a family, a non-financial company, an institutional investor, a government, a foreign entity, a domestic entity…). In this paper, we look at the influence of ownership type changes on risk and profitability. Working with a panel of commercial banks from 17 European countries, we find that although banks that experience a change in ownership type do not exhibit lower or higher risk or profitability than other banks, their risk and profitability is significantly affected after the change takes place. The type of the acquirer plays a significant role in explaining the observed changes. When the acquirer is a non-financial company, the state or an institutional investor, the level of risk increases after the change while the level of profitability remains unchanged. Conversely, when the acquirer is a bank, we find that the level of risk-adjusted profitability decreases. Banks acquired by a different type of owner during the global financial crisis do not perform better or worse than they did before.     

银行盈利的宏微观因素——对中国银行业的实证研究

This paper seeks to examine the determinants of the profitability of the Chinese banking sector during the post-reform period of 2000–2005. The empirical findings from this study suggest that all the determinants variables have statistically significant impact on China banks profitability. However, the impacts are not uniform across bank types. We find that liquidity, credit risk, and capitalization have positive impacts on the state owned commercial banks (SOCBs) profitability, while the impact of cost is negative. Similar to their SOCB counterparts, we find that joint stock commercial banks (JSCB) with higher credit risk tend to be more profitable, while higher cost results in a lower JSCB profitability levels. During the period under study, the empirical findings suggest that size and cost results in a lower city commercial banks (CITY) profitability, while the more diversified and relatively better capitalized CITY tend to exhibit higher profitability levels. The impact of economic growth is positive, while growth in money supply is negatively related to the SOCB and CITY profitability levels.      

The Theory of the Second Best and the Competitive Equilibrium Model

We study the international transmission of bank liquidity shocks from multinational, Islamic, bank-holding companies to their subsidiaries. Based on a total sample of 120 Islamic and conventional bank subsidiaries, we test whether foreign bank lending for Islamic and conventional banks is determined by different factors. We estimate a model that includes subsidiary and parent bank characteristics as well as host and home country variables. Our empirical findings show that lending is negatively affected by the fragility of conventional parent banks' subsidiaries. Nevertheless, we show that parent Islamic banks do not significantly affect lending by subsidiaries. Finally, we examine the market discipline regarding the transmission of liquidity shocks. We also find that reduction in foreign Islamic bank lending is stronger for those that are dependent on the interbank market. We establish that the depositors react to a deterioration of bank performance and punish their institutions by withdrawing their money. We show that market discipline has a more important role for Islamic banks, whereas liquidity needs determine the change in conventional banks.     

Bank profitability and macroeconomic conditions: Are business models different?

The paper investigates the impact of macroeconomic conditions on the profitability of EU banks by testing for differential effects according to the business model. We group banks into three business models using a hierarchical cluster analysis and find that using clusters based on the share of assets invested in loans reveals heterogeneity in the sensitivity of bank profitability to economic growth across business models. Our main result is that GDP growth, credit growth, and the risk-free yield curve influence profitability as expected, but we also find that the effect of GDP growth is only significant for banks that have a high and medium share of assets invested in loans, and not for banks that hold large portfolios of securities. This difference depends on the impact of growth on asset write downs, especially those on loans and, to a lesser extent, on revenues. The results suggest that studies relating bank profitability to macroeconomic conditions should take the heterogeneity of business models into account.     

Bank overall financial strength: Islamic versus conventional banks

A number of recent studies compare the performance of Islamic and conventional banks with the use of individual financial ratios or efficiency frontier techniques. The present study extends this strand of the literature, by comparing Islamic banks, conventional banks, and banks with an Islamic window with the use of a bank overall financial strength index. This index is developed with a multicriteria methodology that allows us to aggregate various criteria capturing bank capital strength, asset quality, earnings, liquidity, and management quality in controlling expenses. We find that banks differ significantly in terms of individual financial ratios; however, the difference of the overall financial strength between Islamic and conventional banks is not statistically significant. This finding is confirmed with both univariate comparisons and in multivariate regression estimations. When we look at the bank financial strength within regions, we find that conventional banks outperform both the Islamic banks and the banks with Islamic window in the case of Asia and the Gulf Cooperation Council; however, Islamic banks perform better in the MENA and Senegal region. Second stage regressions also reveal that the bank overall financial strength index is influenced by various country-specific attributes. These include control of corruption, government effectiveness, and operation in one of the seven countries that are expected to drive the next big wave in Islamic finance.     

金融中介及关系银行——基于广东外资企业银行融资数据的研究

本文根据外资银行和国有商业银行向在中国境内的外资企业提供的外币贷款和人民币贷款的数据 ,对金融中介及关系银行进行了实证研究。我们的主要结论有两点 :第一 ,企业与银行建立起来的金融业务关系越长久 ,那么其所获得的外币贷款利率就越低。这是对金融中介理论的支持。另外 ,外资控股、第三方担保等因素 ,也具有降低外币贷款利率的效应。第二 ,人民币贷款的利率随着外资企业与更多的银行建立和保持合作关系而降低。人民币贷款主要是由我国商业银行提供。如果商业银行间的竞争仅仅是用来作为信贷定价的主要决定因素 ,而不是用来推进金融创新 ,提供高质量的金融产品和服务 ,那么这将会损害我国商业银行的获利能力并进而影响金融系统的健康发展。     

Global banking,global crises? The role of the bank balance-sheet channel for the transmission of financial crises

We examine whether shocks to leveraged creditors with cross border holdings have an incidence on debtor countries׳ risk of suffering financial turmoil. We construct a new proxy of shocks to international banks׳ balance-sheets using credit ratings and the structure of their international assets. This allows us investigating the effect of (foreign) bank balance-sheet shocks on domestic financial turmoil in a large sample of 146 developed and emerging economies from 1984 to 2011. Our proxies of shocks towards bank balance-sheets are strong predictors of systemic banking crises in their debtor countries. Confirming these results, bilateral bank flows significantly decrease when creditor banks׳ assets are hit by negative shocks, as measured by credit rating downgrades from third-party countries. Short-term liabilities towards global banks appear to increase roll-over and funding risks, thereby amplifying the impact of shocks to foreign lenders’ balance-sheets. Domestic banking sectors vulnerabilities, such as illiquid assets and a low deposit-asset ratio, are found to increase crisis contagion risk. In contrast, a high level of global liquidity attenuates the transmission of shocks to international banks׳ assets to debtor countries.     

HOW DOES FOREIGN BANK OWNERSHIP IN THE BANKING SECTOR AFFECT DOMESTIC BANK BEHAVIOUR? A DYNAMIC PANEL DATA ANALYSIS

The purpose of this paper is to investigate how foreign bank ownership in the banking sector affects domestic bank behaviour and whether this relationship depends on the economic and financial conditions of the host country. This paper contains 795 individual banks in 39 countries covering the period 1999–2006. Foreign ownership is calculated using bank level data as a proxy for the degree of foreign bank ownership in the banking sector. First, we find that foreign bank ownership is associated with a decrease in both the profitability and overhead expenses of the domestic bank after applying the system panel Generalized Method of Moments model. Second, a lower level of economic development of the host country enhances the positive effects of foreign bank ownership on the income, profit and cost of domestic banks. Third, financial development plays an important role in determining the effect of foreign bank ownership. Fourth, while the use of aggregate foreign ownership data may provide us with a big picture, it may not explain why individual banks in the same country perform differently, which this study will answer.     

Monetary policy and bank lending in a low interest rate environment: Diminishing effectiveness?

This paper analyses the effectiveness of monetary policy on bank lending in a low interest rate environment. Based on a sample of 108 large international banks, our empirical analysis suggests that monetary policy is less effective in stimulating bank lending growth when interest rates reach a very low level. This result holds after controlling for business and financial cycle conditions and different bank-specific characteristics such as liquidity, capitalisation, funding costs, bank risk and income diversification. We find that the impact of low rates on the profitability of banks’ traditional intermediation activity helps explain the subdued evolution of lending in the period 2010–14.     

On the relationship between financial inclusion and bank performance

This study examines the relationship between various financial inclusion measures and banks' performance across multiple countries with varying institutional, regulatory and income levels. To construct an aggregate bank performance index, we employ principal component analysis, which utilises a set of critical indicators summarised by the CAMEL rating system, including banks' solvency, asset quality, efficiency, profitability and liquidity. Our primary findings indicate that different measures of financial inclusion exhibit varying associations with bank performance. Specifically, there is a trade-off between bank performance and credit deepening, especially in high-income nations. Conversely, in low-income nations, higher financial inclusion, measured by deposits to GDP, number of deposits, and number of borrowers, does not affect bank performance adversely. Banks in low-income nations could achieve significant gains by improving financial access and enhancing regulatory environments.     

Difficult to digest: Takeovers of distressed banks in Vietnam

Government-induced or voluntary takeovers are frequently used as an indirect way to bail out distressed banks. In this paper, we analyse the impact of acquisitions on banking performance in Vietnam. To demonstrate that the acquirer is not simply inheriting the properties of the underperforming targets, we compare the performance of the merged bank to the pro forma consolidated performance of the acquirer and the target before the merger. We show that takeovers during and after the financial crisis substantially weaken profitability and liquidity and that this negative effect persists for a period of at least 6 years. These findings show that shareholders should be wary of acquisitions and suggest that stabilizing banks through mergers may have detrimental indirect long-term consequences on the efficiency of financial systems and ultimately economic growth.     

Estimating the direct impact of bank liquidity shocks on the real economy: Evidence from letter‐of‐credit import transactions in Colombia

This study identifies and provides an estimate of the impact of bank liquidity shocks on real economic activity by exploring letter‐of‐credit import transactions in Colombia during the 2008 to 2009 global financial crisis. The detailed dataset on letter‐of‐credit transactions allows for exploiting within‐importer–exporter variation across issuing banks. The study finds substantial effects of bank liquidity shocks on letter‐of‐credit import transactions: banks that were more vulnerable to adverse liquidity shocks—proxied by the ex ante reliance on wholesale funding or borrowings from foreign banks—reduced letter‐of‐credit issuances more in both intensive and extensive margins. The study also confirms that it had real effects: importer–exporter pairs that relied more on letter‐of‐credit transactions experienced a greater reduction in their total imports in response to adverse bank liquidity shocks.     

Fiscal deficits,monetary reform and inflation stabilization in romania

Developing countries have witnessed an increase in foreign bank participation during the last decade. Using bank level data for the period 1991–2001, we examine the influence of foreign banks on the financing of small firms in Tanzania. Despite dominating the banking sector, results suggest that the financing of small firms by foreign banks is insignificant compared to domestic banks. Clearly, there is a need for a new approach to policy that will encourage significant foreign bank lending to small firms.     

Impact of financial reforms on efficiency of state-owned,private and foreign banks in Pakistan

This article uses a unique bank level data from 1991 to 2000 and evaluates how financial reforms affect banking efficiency of domestic and foreign banks in Pakistan. The results suggest that banking efficiency falls during initial reform period when banks adjust to enhanced competition but increases in more advanced stages of reform. While in general foreign and private banks show superior efficiency and factor productivity than do state-owned banks, the relative performance of foreign banks worsens after the consolidation stage of the financial reforms is over. We show the importance of link between bank size, asset quality and bank branches with efficiency indexes and also note that every 10% increase in share of nonperforming to total loans decreases banking efficiency by 6 to 10%.