Do banking system transparency and competition affect nonperforming loans in the Chinese banking sector?

The increasing importance of transparency practices and the improving status of bank competition in China are rarely explored in nonperforming loans (NPLs) literature. Thus, the purpose of this study is to examine banking system transparency and competition along with macroeconomic and bank-specific variables as determinants of NPL. We use the two-step system GMM dynamic panel model for Chinese banks based on annual data from 2000 to 2014. Our results indicate that high transparency in the Chinese banking system decreases poor-quality assets but not in the case of government-owned banks, whereas increase in competition increases NPL. Moreover, we find mixed results in the context of macroeconomics and bank-specific variables. Our study has practical implications in risk management practices and macro prudential policies.     

Does branch network size influence positively the management performance of Japanese regional banks?

This article investigates whether branch network expansions by Japanese regional banks influence their management performances positively at a time when management environments surrounding regional financial institutions have become increasingly severe due to the population decreases and shrinkage of regional economies. Specifically, the effects of numbers of regional bank branches on their credit businesses and profits are empirically examined. The results indicated that regional banks with more branches can increase their loans and bills discounted as well as their small and mid-sized enterprises loans and bills discounted. Thus, establishing more branches is effective in increasing the total sum of loans and bills discounted by each bank because regional banks with many branches can make contact with more customers. On the other hand, return on assets and return on equity of regional banks with more branches were found to be lower. Therefore, regarding the cost performance of regional banks, establishing too many branches and maintaining branch networks that are too large can have negative effects on regional banks.     

Nonperforming Loans and Purchase of Loans by Public Asset Management Companies in Malaysia and Thailand

This paper explores the factors which eliminated the nonperforming loan (NPL) problem in Malaysia and Thailand following the 1997 Asian financial crisis. The number of NPL, which expanded in the aftermath of the crisis, has since declined in most South‐East Asian countries. Although previous studies have explored the causes of the increase in NPL numbers, few have analysed the factors that contributed to the reduction in their number in Asia. In Malaysia and Thailand, authorities put in place several measures to manage NPL. As a vehicle to acquire NPL from banks, Malaysia established the Pengurusan Danaharta Nasional Berhad (Danaharta) in 1998, while Thailand established the Thai Asset Management Corporation (TAMC) in 2001. We analyse whether the characteristic features of banks, improvements in macroeconomic conditions, and facilities for purchasing loans caused a reduction in the number of NPL in Malaysia and Thailand. The results suggest that selling loans to a public asset management company was effective in reducing the number of NPL in Thailand. While macroeconomic conditions influenced the decline in NPL ratios in Thailand, in Malaysia, well performing commercial banks and large commercial and investment banks generally had smaller NPL ratios throughout and following the crisis.     

The dynamic of bank lending channel: Basel regulatory constraint

This article analyzes the impact of monetary policy on bank behavior under the Basel I regulatory framework using a dynamic model with monopolistic competition. There are two main objectives. First, we theoretically predict the dynamic model of bank lending channels under the Basel I regulatory constraint. Second, we empirically analyze the situation in Malaysia by using panel data on 23 commercial banks in the period of 1999 to 2007 by using General Method of Moments. The empirical results show that market rates on loans and policy rates are important influences on average rates of banks' loans. This has an implication that Malaysian banks have the power to set their own prices on loans as they are influenced by the change in the market rate and policy rate. We also have proven that the previous period of spread risk weighted loans and securities is statistically significant and correlated with the average loan rate, whereas risk weighted securities is also statistically significant and correlated with the average time deposit rate in both periods. This shows that the role of risk-weighted assets under the Basel I is important in influencing the optimal rates on loans and time deposits.     

现有银行产权制度下的不良资产生成机制

在目前银行改革的背景下,银行的不良资产仍然是阻碍银行发展的重大问题.本文分别在对称信息和不对称信息的前提下,通过建立两阶段的动态博弈模型,用激励相容约束机制,阐明国有银行不良资产之所以仍然不断涌现,是由于政府对银行产权份额的过多持有,激励不够充分而导致的.在此基础上,提出目前银行改革的主要问题和相应的政策建议.     

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.     

Product diversification and bank risk: evidence from South Asian banking institutions

ABSTRACT

We investigate whether the product diversification activities of South Asian banking institutions have led to an increase or decrease in their solvency and profit risks. Using the data of five countries – India, Bangladesh, Nepal, Pakistan and Sri Lanka – for the period 2000–2016, we analyse the effect of both income and assets diversification activities on the Z-score and SDs of ROA (Return on Assets) and ROE Return on Equity). Among income diversification activities, securities trading income has a significant positive influence on bank risk while other categories have no influence. With respect to assets diversification, non-interest-bearing assets and loans given to government were found to have a significant positive influence on bank risk, while mortgage loans and non-classified loans have opposite influences. However, the impacts of securities trading income and loans given to the government are mainly confined to private sector banks and state-owned banks, respectively. We also uncover some country-specific diversification influences on the above relationships.     

Performance of Thailand banks after the 1997 East Asian financial crisis

The performance of commercial banks and government-owned specialized banks in Thailand is estimated after the 1997 East Asian financial crisis. Commercial banks exhibit increasing returns to scale, whereas government-owned specialized banks exhibit decreasing returns to scale, implying further increases in bank size and market concentration in the commercial bank sector but not for government specialized banks. Cost inefficiency varies by bank and is a function of the ratio of nonperforming loans (NPLs) to total loans, equity to total assets and liquid assets to total assets, as well as the number of branches. On average, banks with fewer NPLs, that are well capitalized and with adequate liquidity are efficient. Thus, stricter rules to regulate credit risk management and ensure capital and liquidity adequacy would enhance efficiency in the banking sector. Although estimated input substitutability appears to be low, labour and loanable fund are substitutes. However, labour and physical capital as well as physical and loanable funds are complements in commercial banks. All the three inputs of labour, physical capital and loanable funds are substitutes for the government specialized banks.     

Shocks to bank capital: evidence from UK banks at home and away

This article assesses how shocks to bank capital may influence a bank's portfolio behaviour using novel evidence from a UK bank panel data set from a period that predates the recent financial crisis. Focusing on the behaviour of bank loans, we extract the dynamic response of a bank to innovations in its capital and in its regulatory capital buffer. We find that innovations in a bank's capital in this (precrisis) sample period were coupled with a loan response that lasted up to 3 years. The international presence of UK banks allows us to identify a specific driver of capital shocks in our data, independent of bank lending to UK residents. Specifically, we use write-offs on loans to nonresidents to instrument bank capital's impact on UK resident lending. A fall in capital brought about a significant drop in lending in particular, to Private Nonfinancial Corporations (PNFC). In contrast, household lending increased when capital fell, which may indicate that, in this precrisis period, banks substituted into less risky assets when capital was short.     

Over-the-counter loans,adverse selection,and stigma in the interbank market

We study a model of interbank credit where physical and informational frictions limit the opportunities for intertemporal trade among banks and outside investors. Banks obtain loans in an over-the-counter market (involving search, bilateral matching, and negotiations over the terms of the loan) and hold assets of heterogeneous quality that in turn determine their ability to repay those loans. When asset quality is not observable by outside investors, information about the actions taken by a bank in the loan market may influence prices in the asset market. In particular, under some conditions, borrowing from the central bank can be regarded as a negative signal about the quality of the borrower?s assets and banks may be willing to borrow in the market at rates higher than the one offered by the central bank.     

WHAT CAUSES THE EFFICIENCY AND THE TECHNOLOGY GAP UNDER DIFFERENT OWNERSHIP STRUCTURES IN THE CHINESE BANKING INDUSTRY?

This paper estimates and compares the cost efficiency of the Chinese banking industry among different ownership types for the period 2003–2014, using the stochastic metafrontier model. We find that foreign banks have the lowest cost frontier, while state‐owned commercial banks undertake the least sophisticated technology. Moreover, the results of the upward trend in the technology gap ratio (TGR) and in metafrontier cost efficiency support that a more open financial market is able to enhance banking efficiency. As for the role of environmental conditions, off‐balance sheet items, non‐performing loans, and financial market structure significantly impact the TGRs of different bank types. (JEL C51, G21, D24)     

DEPOSITOR DISCIPLINE, REGULATORY CONTROL, AND A BANKING CRISIS: A STUDY OF INDIAN URBAN COOPERATIVE BANKS

ABSTRACT ** :  Urban Cooperative banks in India (UCBs) play an important role in mobilizing resources from lower and middle-income groups and in providing direct finance to small entrepreneurs and traders. Motivated by previous empirical work on depositor disciplining behaviour, this paper examines whether depositors punish weak UCBs by withdrawing deposits during and after a banking crisis. In addition, the paper investigates the impact of tightened prudential standards imposed by the Indian central bank (RBI) on the ratio of investments to loan assets and on the rate of growth of loans. Our sample of 45 UCBs is partitioned into strong and weak banks and subjected to econometric testing. Our analysis reveals that a banking crisis is associated with a contraction in deposits across the sample. However, weak banks appear to be disciplined by depositors during election years. We also find weak support for the contention that banks reduced loans when faced with intensified regulatory scrutiny in the aftermath of a crisis.     

Earnings management behaviors under different economic environments: Evidence from Japanese banks

This paper investigates Japanese banks' earnings management behavior under three distinct economic environments: (1) high-growth with asset price bubble economy (1985–1990); (2) stagnant growth with financial distress economy (1991–1996); and (3) severe recession with credit crunch economy (1997–1999). Using bank balance sheet information of 78 Japanese banks, we find that earnings management behavior by Japanese banks differ considerably across the three periods. Our results indicate that banks used security gains as a means to manage earnings throughout all three periods. We also find that banks used loan loss provisions to manage earnings; however, this behavior is only prevalent during the first two periods. Due to the fact that banks faced record-high non-performing loans during the latter severe recession period, banks on average may have been restrained from using loan loss provisions to smooth income and/or to replenish regulatory capital. Consistent with previous studies, we find that the Japanese banks significantly lowered their lending with increased provisions.     

Banking Competition,Risk and Regulation*

In a dynamic framework, commercial banks compete for customers by setting acceptance criteria for granting loans, while taking into account regulatory requirements. By easing its acceptance criteria a bank faces a trade‐off between attracting more demand for loans, thus making higher per‐period profits, and deterioration in the quality of its loan portfolio, thus tolerating a higher risk of failure. Our main results state that more stringent capital adequacy requirements lead banks to set stricter acceptance criteria, and that increased competition in the banking industry leads to riskier bank behaviour. It is shown that risk‐adjusted regulation is effective. In an extension of our basic model, we show that it may be beneficial for a bank to hold more equity than prescribed by the regulator, even though issuing equity is more expensive than attracting deposits.     

Collateralized Lending by Indian Banks: Some Explanations and Policy Implications

This paper draws a parallel between the extent of unsecured lending that a bank does and the screening effort extended by the bank. Since unsecured lending requires screening on the part of the bank, higher the percentage of unsecured loans in total loans, higher is likely to be the screening effort while processing loan applications. Using panel data relating to banks in India, we find that on an average a higher extent of screening effort or unsecured loans is likely to be provided by banks that are large, have low level of non-performing assets, and are in the private sector. Further, persistence in the extent of unsecured lending seems to suggest that any change in unsecured lending/ screening effort is likely to be rather slow.

     

The effect of economic policy uncertainty on bank valuations

This article examines how economic policy uncertainty (EPU) affects bank valuations. Using a large sample of banks over a long period, we find that EPU has a negative effect on bank valuations. One explanation for this result is that EPU reduces bank loan growth, and lower loan growth then leads to lower bank valuations. Consistent with this explanation, we find that the negative effect of EPU is more pronounced for banks with a higher ratio of loans to total assets.     

Economies of superscale in commercial banking

Most previous studies of scale economies in banking have excluded banks larger than $1 billion in assets. Thus study, by contrast, estimates cost functions for the 100 largest US commercial banks. ‘Hedonic’ terms are incorporated to correct for the aggregated nature of the Call Report data available for these banks. In addition, we attempt to quantify the cost benefit of diversification in the model. We estimate efficient bank scale to range from $15 billion to $37 billion in total assets, a thousandfold increase over some previous findings. These results are supported by comparison of actual average costs, as well as by casual historical observation and the level of widespread concern over interstate banking. Our findings suggest some cost incentive or benefit to expansion or consolidation among large regional banks, including interstate expansion or consolidation.     

Do Islamic banks shift from mark-up to equity financing when their contracting environments are improved?

Islamic banks should share their profits and losses with their customers through equity financing but most of their assets are mark-up financing, which resembles loans. Theoretically, one of the reasons is Islamic banks operate in poor contracting environments where equity financing is very risky. Using fixed-effects models, we examine whether better contracting environments induce Islamic banks to shift from mark-up to equity financing. We find no evidence that contracting environments do, which means debt-like instruments will continue dominating Islamic banks’ assets in the near future.     

中国上市商业银行业务结构与盈利能力研究

中国上市商业银行盈利能力与业务结构紧密相关,论文从不同角度考察了商业银行的盈利能力,从资产负债业务结构的差异来分析商业银行盈利能力差异.由于目前国内各商业银行在大多数组织结构和运营模式上大同小异,决定一个商业银行盈利能力的关键可能在于其业务结构的差异.反映商业银行盈利能力的指标主要包括平均资产回报率、平均股东权益回报率、净利差和利息收益率等指标,而成本收入比作为一类占营业收入百分比的指标也可以用来衡量商业银行的盈利能力,本文主要采取成本收入比率和净资产回报率作为考察变量.通过对中国部分上市商业银行业务结构与盈利能力研究,贷款行业结构、区域结构、产品类型结构和存贷款期限结构决定了商业银行的收入空间,而存款的期限结构,特别是3个月以内的活期存款比重对商业银行的成本有着至关重要的影响.     

Implications of Shifting Retail Market Shares for Loan Monitoring in a Dominant‐Bank Model

This study utilizes a dominant‐bank model to investigate whether an increase in retail loan and deposit‐market concentration increases the incentives for both dominant and fringe banks to monitor their loans and thereby improve the quality of their loan portfolios. It shows that the effects on banks' incentives to engage in monitoring aimed at eliminating loan default losses in response to increased concentration of retail market shares of loans and deposits depend critically on whether the banks' asset and liability choices are interdependent. When the asset and liability decisions of both dominant and fringe banks are independent, a shift in market shares in favor of the dominant bank generates a straightforward increase in the incentives of all banks to monitor their loans. Under portfolio interdependence, the effects on monitoring outcomes at dominant banks and at banks within the competitive fringe depend on more complicated configurations of parameters. This fact helps explain mixed empirical evidence on the relationships between bank competition and measures of bank risk and soundness.