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The purpose of this paper is to examine the operational efficiency and effects of market concentration and diversification on the efficiency of Chinese and Indian banks in the 1997-2011 period.

This study employs the two-stage bootstrap procedure of Simar and Wilson (2007) to obtain valid inferences on the efficiency scores and the efficiency determinants.

Using data set for each country separately, the authors found that the bias-corrected cost efficiency displays an upward trend in Chinese and Indian banks. This trend is consistent with profit efficiency among Chinese banks, but the trend is unclear in Indian banks. Market concentration is negatively related to cost and profit efficiencies of Chinese banks. However, market concentration is positively associated with cost efficiency, but unrelated to profit efficiency of Indian banks. In Chinese banks, diversification of revenue, earning assets and non-lending earning assets are associated with increasing profit efficiency, but their effects to cost efficiency are not clear. In Indian banks, diversification of earning assets increases profit efficiency while there are cost efficiency losses from diversification of revenue and earning assets.

Bank regulators and supervisors in China should consider establishing policies to reduce market concentration and encourage diversification of revenue, earning assets and non-lending earning assets, while increasing concentration and diversification of earning assets should be encouraged in Indian banks.

To the best of the authors’ knowledge, this is the first study employing the double bootstrap procedure proposed by Simar and Wilson (2007) which can address the problem of the two-stage data envelopment analysis or SFA estimator in the efficiency literature on Chinese and Indian banks that efficiency scores obtained in the first stage are inter-dependent, and hence violating the basic assumption in regression analysis in the second stage.

This paper aims to understand how aversion to interest income in Islam may influence the demand for real estate and gold when inflation is rampant.

According to Markowitz’s mean-variance model, an optimal portfolio is one that blends maximum return with minimum variance. In investment portfolios, real estate and gold serve as inflation hedges. For religious reasons, many Muslims exclude interest-earning assets from their portfolios, however. This paper explores how this attitude influences the hedging role of real estate and gold when inflation is rampant. This paper compares optimal portfolios that include and do not include interest-earning assets. In the calculations, this study uses monthly Turkish data from 1997 until 2018.

The analysis shows that the best hedging instrument against inflation is an interest-earning asset. In its absence, the role of real estate and gold as inflation hedges markedly increases: For a medium-return and medium-risk portfolio, for instance, the portfolio share of gold holdings increases from 3.16% to 58.43% and that for real estate increases from 14.97% to 24.06%.

This paper is a pioneering work on the influence of Islam on the roles of real estate and gold as inflation hedges when inflation is rampant. It provides an explanation from financial theory for the strong real estate and gold demand in Turkey in the past two decades.

This chapter examines the impact of economic policy uncertainty (EPU) on bank profitability, using a sample of US banks from 2001 to 2016. We find a robust negative relationship between the aggregate level of policy uncertainty and bank profitability. The channel analysis shows that policy uncertainty can significantly reduce loan growth and increase the nonperforming loan ratio. More importantly, we find critical evidence that bank capital can improve the impact of policy uncertainty on the bank's economic performance and operation. Overall, this chapter has an important policy implication: policymakers can reduce the adverse effect of policy uncertainty on the banking industry through measures to stabilize bank capital adequacy.

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.

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.

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.

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.

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.

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.

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.

The purpose of the current study is to identify variables that, when integrated into the random effects parametric survival model, could be used to forecast the failure rate of small banks in the USA. A bank’s income production, efficiency and costs were taken into consideration when choosing the internal components. The breakout of the financial crisis, bank regulations that affect how the banking sector operates and the federal funds rate are the primary external variables.

This study uses the random effects parametric survival model to investigate the causes of small bank failures in the USA from 1996 to 2019. The study identifies several characteristics that failed banks frequently display. The main indications that may help to identify the elevated risk of small bank failures include the ROA, the cost of funds, the ratio of noninterest income to assets, the ratio of loan and lease losses to assets, noninterest expenses and core capital (leverage) ratio to assets. Economic disruptions, financial market distress and industry-based regulatory redress by the government exacerbate the financial distress borne by small banks.

The study revealed that a failed bank typically demonstrates a certain number of characteristics. The key factors that might assist identify which bank would be most likely to collapse include the cost of funding earning assets, the yield on earning assets, core Capital (leverage) ratio to assets, loan and lease loss provision to assets, noninterest expense and noninterest income to assets. Additionally, when a financial crisis occurs or the government changes regulations that could raise the cost of compliance for small banks, the likelihood that a bank will fail increases.

Models based on survival theories are more suitable when the authors examine bank failure as a unique event that happens gradually. The authors use a random effects parametric survival model to investigate the internal and external factors that may influence prospective small bank failure. This model has been developed and used in the medicinal research field. The authors do not choose the Cox proportional hazards model because it does not work well with panel data.

This study aims to investigate the differences in the credit profiles of Islamic and conventional banks in the Gulf Cooperation Council (GCC) region and attempts to identify the factors responsible for those differences.

Financial data sourced from the Bankscope database for a sample of 25 Islamic and 56 conventional banks headquartered in the GCC region between 1987 and 2014 are used. The credit risk of Islamic versus conventional banks is compared using a variety of univariate (mean difference test and correlation analysis) and multivariate tests (pooled ordinary least squares (OLS) regressions with robust standard errors and year fixed effects, regressions with interaction variables and logistic regressions).

Pooled OLS regressions find that Islamic banks have lower credit risk than conventional banks. Robustness checks using logistic functions and interaction variables confirm this result. Using multiple econometric specifications, we also find that higher capitalization, greater liquidity and cost inefficiency contribute to the lower risk profile of Islamic banks.

The study is unable to disaggregate data for banks offering both Islamic and conventional banking services and hence does not include conventional banks with Islamic windows. In addition, there are differences across countries even within the GCC region as to what is considered Sharia’h-compliant and what is not.

The results are of potential interest to not only researchers, but also market participants, regulators and legislators. The methods used in this study could be extended to other two-tiered banking systems and, in the case of Islamic and conventional banking, to other markets.

The authors use a unique sample of banks headquartered in the GCC countries, whose banking markets are similar, if not homogeneous, thus excluding operations of multinational banks. By focusing on the Gulf region, differences in the credit profiles of Islamic and conventional banks can be examined without the confounding effects of unobserved factors like culture, accounting regime or regulatory environment.

This paper examines the profitability and performance measurement of U.S. regional banks during the period 1994–2011, using the GMM estimator technique. Our study extends prior research by including several factors not previously considered using U.S. data.

We use bank-specific, industry-specific, and macroeconomic determinants of profitability contemporaneous with our performance indicators. We follow the accounting fundamental analysis path in explaining the bank performance.

Among the performance measures, the efficiency ratio and provisions for credit losses are negatively and equity scaled by assets is positively related to profitability. However, these relationships either reverse (efficiency ratio and provisions for credit losses) or become insignificant (equity scaled by assets) when the target becomes change in profitability. The level of nonperforming assets is negatively related to profitability across all measures of profitability used. Macroeconomic variables are largely unrelated to profitability during the year they are measured. However, they have a significant relationship with earnings change measures, suggesting they have a lagged effect on profitability. The slope of the yield curve is especially strong in this regard.

We use our determinants to model changes in bank profitability one year ahead, in addition to including several factors not previously considered, using the predictive focus of the fundamental analysis research.

The purpose of this paper is to investigate the relationship between bank-specific characteristics and profitability in European banking sector to find the role of internal factors in achieving high profitability.

A regression analysis is built on an unbalanced panel data set comprising 175 observations of 35 top European banks over the period 2009-2013. To this end, the empirical data are collected from Bankscope and a comprehensive set of internal characteristics is examined.

All the determinant variables included in the model have statistically significant impacts on European banks’ profitability. However, the effects are not uniform across profitability measures. Regression findings reveal that size and capital ratio are significant company-level determinants of bank profitability in Europe, while higher loan loss provisions result in lower profitability levels. Findings also suggest that banks with higher deposits and loans ratio tend to be more profitable but the effects on profitability are statistically insignificant in some cases.

This study has considerable policy implications, as the performance of the European banking sector depends on its efficiency, profitability and competitiveness. In view of these findings, some suggestions may be functional for bank regulatory authorities to intensify and sustain robustness and stability of the banking sector.

The results provide interesting insights into the characteristics and practices of profitable banks in Europe. Few econometric studies have empirically explored the determinants of bank profitability in Europe so far, even though similar studies have been conducted in several developed countries. Therefore, this paper tries to close an important gap in the existing literature improving the understanding of bank profitability in Europe.

This chapter examines whether the geographic distance between subsidiaries of multinational banks and their headquarters is an important factor in determining the performance of the subsidiaries. Using various performance indicators of 340 subsidiaries in 54 emerging and developing economies from 69 global banks during the years 1994–2008, we find evidence that first, the distance constraint adversely affects loan growth, profitability, and performance of foreign bank subsidiaries, and second, the unfavorable information asymmetry faced by foreign banks, due to the distance constraint, in financing foreign clients cannot be fully overcome by establishing their presence abroad such as setting up their foreign subsidiaries. We further examine if the effect of distance is symmetric across different banks and countries and find the following various economic, financial, and institutional factors to affect the strength of distance constraints in the multinational banking activities: the entry mode of foreign banks, the history of presence in local markets, the existence of credit information institutions, the cultural similarity between the home and host markets, financial depth, financial crisis periods, the stock market development, the banking market structure in host markets, and the hierarchy of the subsidiary in the multinational banking conglomerate.

Average bank net interest margins vary widely across Gulf Cooperation Council (GCC) countries, net interest margins of Omani banks are significantly higher. The resultant low level of financial intermediation implies reduced investment and economic growth. Understanding the reason for these high and persistent spreads is important to develop a policy for improving effectiveness of the banking system. The paper aims to discuss these issues.

Net interest margins of Arab GCC banks during the period 1999-2012 are examined using the balanced panel regression model with bank specific, financial/market structure specific and macroeconomic factors as determinants. The method used for estimation used is the estimated generalized least squares (EGLS) method with both fixed effects and random effects.

Bank-specific variables, which explain net interest margins in GCC, are bank capitalization ratios, loan ratios and overhead expenses. Spread of banking sector (as measured by ratio of total bank credit to GDP) is positive and highly significant, implying that along with the expansion of the banking sector in GCC economies, interest margins of banks also improved. Omani banks were able to increase interest margins by aggressively marketing high yield personal and credit card loans, and, zero interest paying deposit products. The study also finds a negative relationship between concentration and net interest margin, and attempts to explain this finding which is at variance with other country studies using the price leadership model of oligopoly.

The standard, accepted econometric model of net interest margins which has been used in earlier studies is unable to explain the high net interest margins of banks in Oman although it is able to explain interest margins in other GCC countries. There is a need to develop non econometric models. More work is needed on the implications of NIM spreads for how they affect an economy.

The study shows that as the banking sector spreads in the economy, individual banks have more opportunities to market their products while at the same time maintaining interest margins. Bank managements should note this point and look for opportunities to expand.

There is no evidence of any empirical studies which focused on net interest margins in the GCC countries. This study attempts to fill in this gap with a view to nudge policy makers to look at the issue of high interest margins and its detrimental impact on economic growth and development in the Gulf region. The paper is useful for policy makers to understand and rectify the problem of excessive interest spreads which is hurting the financial intermediation process.