Do the business cycle and revenue diversification matter for banks’ capital buffer and credit risk: Evidence from ASEAN banks |
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| Institution: | 1. Monash Business School, Monash University, Melbourne, Vic 3800, Australia;2. Discipline of Accounting and Finance, Newcastle Business School, University of Newcastle, Sydney, NSW 2000, Australia;3. Department of Banking and Finance, Monash Business School, Monash University, Melbourne, Vic 3800, Australia;4. School of Commerce, University of Southern Queensland, Toowoomba, Qld 4350, Australia;1. Accounting Department, Auckland University of Technology, New Zealand;2. Accounting Discipline Group, University of Technology Sydney, Australia;1. Department of Accounting and Corporate Governance, Macquarie Business School, Macquarie University, NSW 2109, Australia;2. School of Accountancy, Massey University, Private Bag 102904, Auckland, New Zealand;1. Faculty of Business, University of Wollongong in Dubai, Dubai, United Arab Emirates;2. Faculty of Business, Economics and Social Development, Universiti Malaysia Terengganu, 21030 Kuala Terengganu, Terengganu, Malaysia;3. Bangor Business School, Hen Goleg, Bangor University, College Road, Bangor LL57 2DG, United Kingdom;1. Department of Accounting, Deakin University, Melbourne, Australia;2. School of Accounting and Finance, The Hong Kong Polytechnic University, Hong Kong;3. Department of Accountancy, City University of Hong Kong, Hong Kong;1. Banking University, Ho Chi Minh City, Viet Nam;2. Paris-Sud/ Paris-Saclay University, RITM, France;3. IPAG Business School, Paris, France;4. University of Economics Ho Chi Minh City, Viet Nam;1. Department of Accounting and Financial Management, International Business School, Beijing Foreign Studies University, China;2. Department of Accountancy, College of Business, City University of Hong Kong, Hong Kong |
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| Abstract: | We examine the association of the business cycle and revenue diversification with the banks’ capital buffer and credit risk for a sample of banks from the Association of Southeast Asian Nations (ASEAN) region from 1998 to 2018, using 2847 banking firm–year observations. We find that ASEAN region banks react anticyclically in adjusting their capital buffer levels and credit risk. We find revenue diversification benefits and that banks, through revenue diversification, can reduce their credit risk while achieving capital savings when confronting economic downturns. Our results offer support for the Basel III accord. However, the relations revealed are somewhat moderated by the regulatory quality, competition, and phase of the business cycle encountered by ASEAN region banks. |
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| Keywords: | Basel III Accord Business cycle Capital buffer Credit risk Revenue diversification |
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