Search results
1 – 10 of over 3000Ibrahim Alley, Halima Hassan, Ahmad Wali and Fauziyah Suleiman
This paper provides evidence that the banking sector reforms of 2004 and 2009 enhanced prudential performance of the banking industry and financial system stability in Nigeria.
Abstract
Purpose
This paper provides evidence that the banking sector reforms of 2004 and 2009 enhanced prudential performance of the banking industry and financial system stability in Nigeria.
Design/methodology/approach
This study uses regression analysis with regime shift to confirm results from tests of two means and variances model to examine the effectiveness of banking sector reforms in Nigeria.
Findings
Evidence from the regression model agrees with findings from the test of means model (not controlling for trend effects) that capital to assets ratio rose while non-performing loan ratio declined after the reforms, and that capital to earning assets ratio rose when trend effects were accounted for. Both the regression model and the tests of means model controlling for trend effects show that return on asset, return on equity and return on earning assets ratios declined after the reforms.
Research limitations/implications
This paper evaluated the effectiveness of banking sector reforms in Nigeria using models that avoid weaknesses that besieged many previous studies. It however used data covering 1983–2020 period, due to data availability. A larger scope of data may improve the results, and future research may re-examine this theme as more data become available. Furthermore, banking stability issues could be examined using specialised techniques such as the generalised autoregressive conditional heteroscedasticity model and related family.
Practical implications
These results suggest that the reforms led to improvement in the sector’s resilience (risks-absorbing capacity) and asset quality, and that profitability had not been the primary focus of the reforms.
Social implications
The authors recommend that regulatory and supervisory authorities in Nigeria continue to implement and improve on banking sector reforms for a more resilient and functional banking system. As a contribution to social research, this study shows that studies on policy evaluation should be located within appropriate theoretical framework: the theory of change. It shows that an appropriate use of attribution analysis and contribution analysis within this theoretical framework engenders robust analysis and results. Otherwise, the analytical findings would be erroneous and policy advice misguided.
Originality/value
The statistical significance of our findings establishes that the banking sector reforms in Nigeria have been effective in promoting financial system stability in Nigeria. By deploying both the test of means with and without trend effects (an attribution analysis) and the multivariate regression analysis with regulatory shift (a contribution analysis), and relying more on the later for its superiority, this study contributes to the body of knowledge in that, it not only determined the true effects of banking sector reforms in Nigeria for appropriate policy guidance but also demonstrated that, in research, an inappropriate methodology produces results that may diverge from the more accurate ones that were derived from the correct methodology.
Details
Keywords
Recalling that the introductory chapter (Chapter 1) wanted to carry out similar types of analysis for the major states in India. Thus, the present chapter tries to examine the…
Abstract
Recalling that the introductory chapter (Chapter 1) wanted to carry out similar types of analysis for the major states in India. Thus, the present chapter tries to examine the trends of a bank branch, deposit, credit, the credit–deposit ratio, sectoral shares of credit, magnitudes of banking transactions, credit concentration, etc., for the selected 15 states and Delhi as the only union territory for the period 1972–2019. The study period covers the pre-reform period from 1972 to 1992 and the post-reform period 1993–2019. The observations show that the branch, deposit and credit did not grow significantly during the post-reform period. As a result, the credit–deposit ratio did not increase significantly during the reform period. But, the magnitude of banking transactions increased in most of the states during the reform period. Regarding the sector-wise share of credit, AP, Maharashtra, UP and TN are the leading states in agricultural credit, WB, Gujarat and Maharashtra are in industrial credit and Kerala, Assam and Delhi are in the service sector. On the other hand, the study finds rising magnitudes credit concentrations of the states during the post-reform period in contrast to the declining concentration in the pre-reform period. Maharashtra is the state which holds around 25 per cent of all states’ credit throughout the entire period of 1972–2019. Hence, there are the notions of rising disparity and inequality in credit as well as incomes of the states and all India levels.
Details
Keywords
Although several microeconomic and macroeconomic factors driving banks' credit quality have been well-studied in the literature, one aspect which appears to have received limited…
Abstract
Purpose
Although several microeconomic and macroeconomic factors driving banks' credit quality have been well-studied in the literature, one aspect which appears to have received limited attention is bankruptcy reforms. To address this issue, the author exploits data on Middle East and North Africa (MENA) country banks during the period 2010–2020 and examines the impact of bankruptcy laws on their credit quality.
Design/methodology/approach
In view of the staggered nature of the implementation of legal reforms across countries, the author utilize a difference-in-differences specification to tease out the causal impact.
Findings
The findings reveal that bankruptcy reforms lead to a significant improvement in banks' credit quality. The impact is manifest mainly for conventional banks and driven by an increase in recovery intensity. The author also presents evidence which shows that such reforms exert positive real effects, although this impact differs across country characteristics.
Originality/value
The study is among the early ones for the MENA region to assess the interlinkage between bankruptcy reforms and banks' credit quality.
Details
Keywords
The values and trends of the credit–deposit (C-D) ratio in countries and the states within them depend on several factors. Two such factors that the present study considers are…
Abstract
The values and trends of the credit–deposit (C-D) ratio in countries and the states within them depend on several factors. Two such factors that the present study considers are the banks’ loanable funds locked under the heads of non-performing assets (NPA) and governments’ securities investments. Increases in the amounts of NPA and securities investments usually lead to a decrease in the allocations of bank credit to real investment purposes, such as industrial, service and agricultural activities and vice versa. On this background, this chapter examines the trends in bank credit in relation to the NPA and securities investments in the states of India and tries to find out the real cause of concern on the falling trends in the C-D ratio in the post-banking reform phase. We may now summarize that the falling C-D ratio or the rising quantity of flight of credit to the real sectors is closely associated with the banks’ investment of extra amount on securities over their statutory limits. This study finds that the NPA ratio at all-India levels is gradually declining while the investments on securities are increasing during the post-reform period. Such a craze behind this investment has an inevitable effect on the magnitude of credit delivery to the commodity-producing sectors. This means that the NPA threat is not a real threat to explain the downward trend of C-D ratio but the magnitude of security investments in both the central and state governments is a real threat and the downward trend of the C-D ratio is the result of this fact. Even though banks are safe in terms of their returns, the scenarios are not good for the rest of the economy as it creels their sustainability.
Details
Keywords
Like the cross-country convergence or divergence analysis in incomes to address the global phenomenon, the same analysis is also required to be done in the case of a group of…
Abstract
Like the cross-country convergence or divergence analysis in incomes to address the global phenomenon, the same analysis is also required to be done in the case of a group of states within a national territory. Further, it is also required to see whether convergence or divergence in incomes of the states is attributable to the convergence or divergence in their allocations of bank credits. Thus, this chapter aims at examining whether the selected major states in India are converging or diverging in the allocations of bank credit, and if so, what will be the magnitudes of decreases or increases in the level of disparities and inequalities in credit allocations. This study concludes that there is a clear diverging tendency of credit allocations of the states of India during the post-reform period so far as the absolute convergence hypothesis of the neoclassical theory is concerned. Further, in terms of the framework of σ convergence, the study observes that all phases of the Indian economy have produced converging paths of the inter-state credit allocations, and the path becomes diverging during the post-reform phase. Based on the quantifications of the magnitudes of disparities and inequalities in terms of CV, C4 concentration, HHI and Gini values, this study thus reveals that there are significant increases in the levels of disparities and inequalities in the allocations of credit to the states from the pre-reform to the post-reform phases. Therefore, the persistence of divergence in income or rising income inequality during the phase of the major reform program in India may be due to the persistence of divergence and rising inequality in the allocation of bank credit.
Details
Keywords
This paper aims to investigate the effects of cost, revenue and profit efficiency on bank profitability in an emerging economy such as India over the period 1997 to 2017…
Abstract
Purpose
This paper aims to investigate the effects of cost, revenue and profit efficiency on bank profitability in an emerging economy such as India over the period 1997 to 2017. Additionally, this study examines the effect of efficiency on profitability across different ownership groups for a panel of 70 Indian commercial banks.
Design/methodology/approach
In the first stage, using stochastic frontier analysis, we estimate the efficiency scores of cost, revenue and profit over the examined period. In the second stage, this study uses the two-step system generalized-method of moments dynamic panel approach to investigate the impact of several efficiency measures on bank profitability.
Findings
Results estimated through and system generalized-method of moments indicate that a higher level of cost, revenue and efficiency significantly improves India's bank profitability. Regarding ownership groups, this study finds that the public sector banks are most cost-efficient compared to private and foreign banks. Other bank-specific, macroeconomic and institutional variables have played a significant role in determining bank profitability.
Practical implications
The findings of the study extend some important policy implications. In light of the rapid decline in bank profitability, banks should focus on increasing the efficiency of their operations. Improvement in profit, cost and revenue efficiency can ameliorate bank performance significantly. Profit efficiency that takes into account both cost and revenue efficiency should be maintained reasonably to prevent the declining pattern of bank profitability that the industry has witnessed over the years.
Originality/value
To the best of the author's knowledge, this study is a fresh piece of research that fulfils an urgent need of investigating the dynamics between bank efficiency and bank profitability in India. In an emerging economy like India, where the banking sector has witnessed substantial structural transformations over the past two decades, such study demands an immediate empirical investigation.
Details
Keywords
Anthony Amoah, Rexford Kweku Asiama and Kofi Korle
This paper acknowledges the rising levels of non-performing loans (NPLs) and the consequences associated with such patterns to an emerging economy like Ghana. In theory, one would…
Abstract
Purpose
This paper acknowledges the rising levels of non-performing loans (NPLs) and the consequences associated with such patterns to an emerging economy like Ghana. In theory, one would expect rising NPLs to have a negative impact on an economy, especially regarding credit creation and private sector growth. This research, consistent with empirical literature, constructs a measure of financial market development to investigate its effect on Ghana's NPLs.
Design/methodology/approach
The fully modified ordinary least squares (FMOLS) econometric technique is used as a way of addressing common time series identification issues such as endogeneity and serial correlation.
Findings
The study finds that the growth of the financial market has a negative and statistically significant relationship with NPLs in Ghana. Therefore, building a stable financial sector is key to addressing Ghana’s rising rates of NPLs.
Practical implications
Applying the breaks to Ghana's NPLs would involve deepening credit and improving efficiency through good governance. The study suggests that such a mechanism would increase financial sector performance and reduce the growth risks arising from the industry.
Originality/value
The study analyzes the influence of financial market development on the quarterly growth of NPLs in Ghana. Most studies only focus on annual growth of NPLs.
Details
Keywords
Abiola John Asaleye, Abiola Ayopo Babajide, Henry Inegbedion, Damilola Felix Eluyela, Adedoyin Isola Lawal and Rotdelmwa Filibus Maimako
The issues of ineffective accountability have affected the performance of banks, which led the Nigerian government to introduce various reforms and policies. However, despite…
Abstract
Purpose
The issues of ineffective accountability have affected the performance of banks, which led the Nigerian government to introduce various reforms and policies. However, despite these attempts, the Nigerian banking sector experiences setbacks due to mismanagement of funds, fraudulent activities and lack of proper accountability, which negatively affects employment and income.
Design/methodology/approach
The dynamic least square was employed to investigate the selected indicators of Nigerian banks’ accountability, income and employment. Likewise, the study examined the causal effect using the Granger non-causality approach.
Findings
In the income equation, the total amount of fraud, deposit, total bank asset has a negative relationship with the income, while loan advance and operating expense depicted a positive relationship. In the employment equation, demand deposit, operating cost and bank total asset practices negatively affect employment. In contrast, loan advances and saving deposits have a positive relationship with employment in the long run.
Practical implications
Based on the findings, this study suggests, among others, the need for long-term systematic policies and reforms to improve the level of accountability in the Nigerian banking sector.
Originality/value
To the best of our knowledge, empirical studies examining the nexus between employment and accountability in the banking sector remain scarce in the literature. Therefore, this study examines the causality and long-run relationship between accountability and employment in Nigerian Banks.
Details
Keywords
Soumik Bhusan and Amrinder Singh
The learning outcomes of this study are to gain an understanding of the banking regulations and their impact on banking performance, to understand the intermediation role of banks…
Abstract
Learning outcomes
The learning outcomes of this study are to gain an understanding of the banking regulations and their impact on banking performance, to understand the intermediation role of banks by channelizing depositors’ savings and providing loans to borrowers, to explain an impact of a recent regulatory change in the Indian banking that directly impacts their financial performance, to critically evaluate the different financial ratios to analyze the performance of a bank and to build a DuPont analysis framework for banks.
Case overview/synopsis
The case serves as a primer on banking regulations in India and provides insights into banking performance. Banking regulations play an important role in maintaining financial stability, specifically in emerging economies like India. The protagonist of the case is Salil Kumar who presented his internship project to the review committee of Stock Investment Company on April 16, 2021. However, he had to rework and present his final project within seven days on the basis of the feedback received from the committee. Kumar faced the dilemma of bringing together a comparative study across two banks, namely, Industrial Credit and Investment Corporation of India (ICICI Bank) and State Bank of India (SBI) and building a DuPont framework covering the different aspects of banking performance. The case exemplifies the intricate regulatory landscape in India within which banks operate and highlights the recent alterations introduced by the Reserve Bank of India. For instance, the framework for dealing with domestic systemically important banks (D-SIBs) was introduced in 2014 and subsequently adopted in August 2015. The D-SIB framework provides inherent guarantee to large banks such as ICICI Bank and SBI. This ensures government backup in the event of any failure, thereby securing financial stability. The case study is suitable for banking and financial accounting courses taught in postgraduate management programs. Once the case is studied, the students are expected to understand the basics of banking, regulations, impact of regulations on banking performance and financial measures.
Complexity academic level
The case provides valuable insights into the intricate dynamics of the banking industry, offering a critical perspective for analysis. A well-structured teaching note would serve as a valuable tool for instructors, allowing them to facilitate engaging classroom discussions and effectively guide students toward achieving the desired teaching objectives.
Supplementary materials
Teaching notes are available for educators only.
Subject code
CSS 1: Accounting and Finance.
Details
Keywords
Heba Abou-El-Sood and Rana Shahin
Motivated by recent financial liberalization policies in emerging markets, this study investigates whether bank competition and regulatory capital affect bank risk taking in an…
Abstract
Purpose
Motivated by recent financial liberalization policies in emerging markets, this study investigates whether bank competition and regulatory capital affect bank risk taking in an international banking context.
Design/methodology/approach
Bank competition is regressed, using GLS regression, on various measures of bank risk, to reflect regulatory, accounting and market-based risk-taking. The authors use a sample of publicly traded banks operating in Africa during 2004–2019.
Findings
Results show that higher level of bank competition increases bank risk taking and results in greater financial fragility in the absence of banking capital regulations. Furthermore, larger capital adequacy ratios control the risk-taking incentives of managers and guard banks against the risk of default. Further tests confirm the significance of market-based risk measures over accounting and regulatory measures.
Practical implications
Findings are relevant to bank managers and regulators in their sustained effort of finding an optimal balance between bank competition and financial stability. Increased competition should be balanced with capital regulations to curtail bank excessive risky behavior and derive the social benefits of greater competition in the market while sustaining overall economic growth.
Originality/value
This study provides novel evidence in an international context. First, it uses regulatory, accounting and market-based measures of bank risk taking to reflect regulators', management and market participants' emphasis. Another original contribution is the investigation of bank competition across African economies characterized by financial liberalization, stringent banking system and interesting socio-economic challenges.
Details