Domestic and multinational determinants of foreign bank profits: The case of Greek banks operating abroad

This paper examines the determinants of profits of Greek banks operating abroad by developing an integrated model that includes a set of determinants informed by the literature on the profitability of both multinational and domestic banks. The basis for our econometric analysis is provided by an unbalanced panel dataset for 19 Greek bank subsidiaries operating in 11 nations, covering the period from 1995 to 2001. The results show that the profitability of the parent bank and the operating experience of its host nation subsidiaries have a robust and positive impact on the profits of Greek banks abroad, whereas subsidiary bank size has a negative effect. Domestic financial factors reflecting stock market developments, bank-specific factors such as liquidity, loan loss provisions or cost efficiency, and market specific factors like concentration or market share in the host nations, are all insignificant in explaining Greek subsidiary banks’ profits.     

Exploring the source of the financial performance in Chinese banks: A risk-adjusted decomposition approach

The profitability is one of the most important information for any profit-oriented firm, especially for the banks. In order to investigate the financial performance of Chinese banks, this study proposes a profitability decomposition model based on the combination of profitability in Ball et al. (2015) and the profit change model in Grifell-Tatjé and Lovell (1999) by using the input distance function. This model cannot only consider risk factors but also can identify the determinants of performance. Furthermore, we incorporate the risk factor into the proposed approach to avoid bias when estimating profit performance. We take 70 Chinese banks over the period of 2013–2019 as the sample data. The results show that there a positive profitability improvement in Chinese banks and the activity effect derived by the scale effect makes a critically positive contribution to profitability performance. We also find that the risk factor can affect the quantity-related effects effect. Finally, there is a significant difference in their decomposed components and that the different components play different functions for different banks.     

The dynamics of US bank profitability

We examine the determinants of profitability for a large sample of US banks over the period 1984–2010. Specifically, we assess the extent to which short-run profits persist, and whether such persistence is affected by changes in regulation and the recent financial crisis. Our findings suggest that the competitive process reduces positions of abnormal profitability, albeit this is not immediate. There is also evidence that changes in regulation enacted during the 1990s affected both the level and persistence of bank profitability. The financial crisis of 2007–2010 appears to have resulted in an increase in the persistence of bank profitability.     

Loan loss provisions and income smoothing – Do shareholders matter?

In this paper, we aim to analyse the role of shareholders in the creation of discretionary loan loss provisions (LLP) and the use of LLP in income smoothing. Using a sample of over 200 Central European banks, we demonstrate that LLP and income smoothing of foreign-owned banks and state-owned banks differ from those of domestic private banks. Foreign and state banks create higher discretionary LLP than private domestic banks. Foreign banks use these LLP to perform discretionary income smoothing, while state banks, in general, do not smooth income. Higher LLP of foreign banks are observed in banks with low asset quality and high profitability. Foreign banks with low profitability that operate in volatile economic environments do not create higher discretionary LLP than domestic private banks. This implies that their risk is not lower than that of locally owned banks, at least on the credit side. In the aftermath of the financial crisis, both foreign and state banks have become more prudent than domestic private banks, and their discretionary LLP are higher. Overall, we provide evidence that foreign and government ownership affect LLP policy in banks. This complements existing results on the differences in loan cyclicality and default risk between foreign, state and domestic private banks.     

Income diversification and risk: Does ownership matter? An empirical examination of Indian banks

We examine the impact of ownership on income diversification and risk for Indian banks over the period 2001–2009. We investigate both the determinants of non-interest income and the impact of diversification on various profitability and insolvency risk measures for public sector, private domestic, and foreign banks. We document that ownership does matter in the pursuit of non-interest income. Relative to private domestic banks, public sector banks earn significantly less fee-income, while foreign banks report higher fee income. Public sector banks with higher levels of governmental ownership are significantly less likely to pursue non-interest income sources. Fee-based income significantly reduces risk, measured by profitability variables, for public sector banks. Default risk is also reduced for these banks. From a regulatory perspective, it appears that diversification benefits India’s public sector banks. Our research has implications for the changes in the risk profile for banks in emerging banking markets pursuing non-interest revenue sources.     

Quasi‐Nationalisation in the UK Banking Crisis: A Problematic Policy Option

The systemic banking crisis in 2008 led to the quasi‐nationalisation of two UK listed banks: The Royal Bank of Scotland and Lloyds Banking Group (National Audit Office, 2010). Using property rights and agency theory as the theoretical frameworks, this paper analyses whether the quasi‐nationalisation of these banks has been successful. It is argued that as a rescue mechanism, quasi‐nationalisation was a positive development. However, questions arise over its effect as an instrument of banking reform. The State's arm's length approach to management represents a lost opportunity to change the culture of profitability over people that contributed to the banking crisis.     

How does foreign entry affect domestic banking markets?

Using 7900 bank observations from 80 countries for the 1988–1995 period, this paper examines the extent and effect of foreign presence in domestic banking markets. We investigate how net interest margins, overhead, taxes paid, and profitability differ between foreign and domestic banks. We find that foreign banks have higher profits than domestic banks in developing countries, but the opposite is the case for developed countries. Estimation results suggest that an increased presence of foreign banks is associated with a reduction in profitability and margins for domestic banks.     

What happened to profitability? Shocks,challenges and perspectives for euro area banks

This paper analyses the evolution of bank profitability from 2005 to 2016, with a focus on the period covering both the global financial crisis and the euro area crisis. To accomplish this, we constructed a dataset that includes financial statement information from 310 euro area banks. Using a dual approach – a ‘bottom-up’ approach as applied by bank analysts and macroeconomists' ‘top-down’ approach, we find that the profitability of euro area banks was hit by two shocks of different nature. The Lehman Brothers collapse affected mostly big banks with diversified portfolios via losses in their securities investment. The subsequent euro area debt crisis and economic recession hit more traditional banks specialising in retail lending activities, mainly through increasing impairment costs. If the first shock had a one-off impact on bank profitability, the second shock is far more long-lasting and is still depressing the profitability of banks in peripheral Europe.     

The Determinants of Bank Capital Ratios in a Developing Economy

This paper reports new findings on the determinants of bank capital ratios. The results are from an unbalanced panel data set spanning eight years around the period of the 1997–1998 Asian financial crisis. Test results suggest a strong positive link between regulatory capital and bank management’s risk-taking behaviour. The risk-based capital standards of the regulators did not have an influence on how regulatory capital is adjusted by low-capitalized banks, perhaps due to the well-documented banking fragility during the test period. Finally, bank capital decisions seem not to be driven by bank profitability, which finding is inconsistent with developed country literature that has for long stressed the importance of banks’ earnings as driving capital ratios. Although the study focuses only on one developing economy, these findings may help to identify the correlates of bank capital ratios in both developed and developing economies since this topic has received scant attention of researchers. These findings are somewhat consistent with how banks engaging in risky lending across the world could have brought on the 2007–2008 banking liquidity and capital erosion crisis.     

The persistence of profits of banks in Africa

This paper analyses the profit persistence of African banking sector, focusing on the role of the level of competition and banks earnings management. We apply Markov chain to analyse the extent and mobility of profit persistence, dynamic auto regressive model to assess the speed of convergence and the quantile regression technique to examine the determinants of profit persistence of banks in Africa. The results show a high level of profit persistence and relatively low speed of convergence. There is also evidence that regulation and banks earnings management affect both the level and persistence of banks profitability. We also find that competition as well as 2007/2008 financial crisis reduce the level and the speed of profit persistence.     

Governance and bank characteristics in the credit and sovereign debt crises – the impact of CEO power

The global financial sector recently suffered from two interrelated crises: the credit crisis and the sovereign debt crisis. A common question is whether the recent experience with the credit crisis has helped in dealing with the sovereign debt crisis. We study more specifically whether banks with powerful CEOs perform better or worse than other banks, and if there is any difference in this relationship between the two crises. Using unique hand-collected data for 378 large global banks, we find that CEO power has a significant positive relation to bank profitability and asset quality, but also to insolvency risk, during the sovereign debt crisis. Thus, strong CEOs do not appear to be detrimental to bank performance. Our results also support the idea that deposit insurance may have contributed to the credit crisis.     

Bank Ownership and Lending: Does Bank Ownership Matter?

Using the Central and Eastern European (CEE) bank-level data covering 2004–12, this article examines the differences in foreign-owned banks’ loan growth and its determinants in comparison with privately-owned domestic banks. The results indicate the greatest differences in the context of bank capital and liquidity. Bank capital remains an important loan growth determinant only for domestic private banks during the non-crisis periods and bank liquidity is of greater importance to domestic private banks during the crisis periods. This highlights local regulatory authorities’ limited ability to harness loan growth and excessive risk-taking during the non-crisis periods and points at the benefits of multinational banking groups’ internal capital markets during the crisis periods.     

Profitability patterns in the interest rate derivatives market

This study identifies profitability patterns and their determinants in the global interest rate derivatives market. Although this market is the world’s largest financial market in terms of nominal value, there has been basically no academic research on profitability owing to missing data. To address this problem, a new analytical method has been developed. Using this new method, the study shows that interest rate derivatives have been a substantial source of profitability that have netted a total average annual profit of more than USD 82 billion for banks since 2009. Furthermore, the study shows that counterparty type, market position (i.e. being one of the Top 5 banks), and trade currency are determinants of the profitability of a trade. For other features of a trade, such as duration or notional amount, no correlation with profitability is found. Finally, the impact of changes of the market structure on profitability driven by regulatory initiatives is discussed qualitatively.     

Factors influencing the profitability of domestic and foreign commercial banks in the European Union

Using bank level data this paper examines how bank's specific characteristics and the overall banking environment affect the profitability of commercial domestic and foreign banks operating in the 15 EU countries over the period 1995–2001. The results indicate that profitability of both domestic and foreign banks is affected not only by bank's specific characteristics but also by financial market structure and macroeconomic conditions. All the variables, with the exception of concentration in the case of domestic banks profits, are significant although their impact and relation with profits is not always the same for domestic and foreign banks.     

银行股权结构、治理机制与综合绩效关系的实证研究

本文选取了具有银行特性的变量,对我国境内部分上市银行股权结构、公司治理机制与综合绩效之间的关系进行了实证分析.分析结果发现,股权结构不是影响这些银行盈利能力的重要因素,大股东们更加关注其投资的安全性和未来的盈利能力;上市银行董事会在控制银行风险方面发挥了积极的作用,但外部董事对内部董事产生的挤出效应影响到董事会决策的质量;高管人员平均薪酬对银行盈利能力和流动性控制能力有显著的正面影响,现金补偿式的低报酬一业绩敏感性激励机制发挥了积极的作用;上市银行监事会偏离了其核心职责,没有发挥风险监督的作用.     

Re-Examining the Determinants of Islamic Bank Performance: New Evidence from Dynamic GMM,Quantile Regression,and Wavelet Coherence Approaches

This study is the first attempt to conduct a comparative analysis of the internal and external determinants of the Islamic banks’ profitability in the GCC region applying dynamic GMM, quantile regression, and wavelet coherence approaches. The dynamic GMM tends to indicate that equity financing and operating efficiency and macroeconomic variables such as money supply, and inflation are significantly related to Islamic banks’ performance. The bank-specific variables such as credit risk, equity ratio, and cost-efficiency ratios are not significant at different percentiles. ROA is driven by credit risk, equity ratio, and cost-efficiency ratios (as evidenced in wavelet coherence analysis).     

中国商业银行竞争效率的国际比较

在对商业银行效率概念分析和效率分析方法比较的基础上,应用数据包络分析方法对10家国内银行和6家外国银行2003～2005年的效率进行评估,结果显示,我国商业银行的效率值低于国际先进银行.基于2005年的数据,运用单要素指标分析法对我国与国际先进银行的经营效率、成本效率和资产配置效率进行比较,分析结果显示:我国商业银行整体的盈利能力较低,资产获利能力普遍较弱,资本收益率与外资银行相比还有一定差距,只有不断加强我国银行业的各项改革,才能使银行业不断地认识并改进自身的不足,进而提高银行业的效率.     

城市商业银行转型及发展趋势探析——基于负债及资产结构变化视角

后金融危机时代，中国宏观经济环境及监管政策的变化成为国内城市商业银行经营转型的重要契机。本文通过对国内70余家城商行的研究发现：规模扩张过程中伴随着负债及资产结构的显著变化，主动负债占比明显提升；信贷资产占比稳步下降，部分代表性城商行在金融市场业务领域确立了一定的竞争优势。只有形成具有自身特色和竞争力的客户、业务及盈利结构才能在未来国内银行业竞争中抢占先机。     

Bank profitability,leverage constraints,and risk-taking

Traditional theory suggests that higher bank profitability (or franchise value) dissuades bank risk-taking. We highlight an opposite effect: higher profitability loosens bank borrowing constraints. This enables profitable banks to take risk on a larger scale, inducing risk-taking. This effect is more pronounced when bank leverage constraints are looser, or when new investments can be financed with senior funding (such as repos). The model’s predictions are consistent with some notable cross-sectional patterns of bank risk-taking in the run-up to the 2008 crisis.     

Did Good Corporate Governance Improve Bank Performance during the Financial Crisis?

This paper focuses on the effects of corporate governance on bank performance during the financial crisis of 2008. Using data on large publicly traded U.S. banks, we examine whether banks with stronger corporate governance mechanisms were associated with higher profitability and better stock market performance amidst the crisis. Our empirical findings on the effects of corporate governance on bank performance are mixed. Although the results suggest that banks with stronger corporate governance mechanisms were associated with higher profitability in 2008, our findings also indicate that strong governance may have had negative effects on stock market valuations of banks amidst the crisis. Nevertheless, we document that banks with strong corporate governance practices had substantially higher stock returns in the aftermath of the market meltdown, indicating that good governance may have mitigated the adverse influence of the crisis on bank credibility.