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Article
Publication date: 15 June 2021

Nguyen Phuc Canh, Christophe Schinckus, Thanh Dinh Su and Felicia Hui Ling Chong

This paper aims to offer an empirical study of the impact of institutional quality on the banking system risk and credit risk.

Abstract

Purpose

This paper aims to offer an empirical study of the impact of institutional quality on the banking system risk and credit risk.

Design/methodology/approach

Applying cross-sectional dependent tests and stationary tests to check the property of our sample, the panel corrected standard errors model is recruited as the main estimator, while feasible generalized least squares, pool ordinary least squares (OLS), robust pool OLS and other estimators are used as a robustness check for an unbalanced panel data for 56 economies divided into three subsamples between 2002 and 2015.

Findings

The empirical results show several significant contributions. First, an improvement in institutional quality is an important factor to reduce the banking system risk. This effect of the institutions is less important in well-capitalized, highly profitable and in high-economic growth countries. This effect is also stronger in highly liquid banking systems. Notably, a better institutional quality helps to reduce the banking system risk in the highly concentrated banking system. Second, institutional quality has a significant negative relationship with the banking credit risk, especially in highly concentrated banking systems and in high-growth countries. This influence is weaker in highly liquid and well-capitalized banking systems. Finally, better institutions reduce the positive effect of trade openness, but it induces a higher credit risk for the banking system from the trade openness. Notably, a better institutional quality enhances the negative effect of foreign direct investment (FDI) inflow on both banking system risk and credit risk. These findings are documented for a global sample and three subsamples: low and lower-middle-income economies, upper-middle-income economies and high-income economies.

Originality/value

This study provides some recommendations, for policymakers, on the roles of institutions in the banking system and financial stability.

Details

Journal of Economics, Finance and Administrative Science, vol. 26 no. 51
Type: Research Article
ISSN: 2077-1886

Keywords

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Article
Publication date: 11 April 2021

Felicia Hui Ling Chong

This paper aims to provide a reflective discussion on the different avenues of blockchain application in Islamic finance in promoting trust and transparency for increased…

Abstract

Purpose

This paper aims to provide a reflective discussion on the different avenues of blockchain application in Islamic finance in promoting trust and transparency for increased accountability between parties involved in the delivery of Sharīʿah-compliant products and services.

Design/methodology/approach

This paper discusses on blockchain benefits in Islamic finance while providing an illustration with smart Sukuk. Having identified the advantages of the development of Islamic financial technology (i-FinTech), this study ends by debating a couple of challenges (computational codification of Sharīʿah principles and environmental impact) that have to be addressed to promote the development of a real sustainable Islamic FinTech.

Findings

This paper also identifies two challenges in using blockchain in i-Fintech. The first challenge refers to the extent to which Sharīʿah principles can be computationally encoded. Blockchain makes public all transactions that ease Sharīʿah compliance checks and determine if these transactions are Islamic in nature but this check can be done only after their operation. The second challenge is related to the algorithmic protocol used to validate smart contracts (including smart Sukuk). This situation calls into question the principles of Maqasid al-Sharīʿah according to which transactions should not harm society.

Originality/value

In the current debates related to the development of Islamic FinTech, this paper also identifies two challenges in using blockchain in i-Fintech.

Details

Qualitative Research in Financial Markets, vol. 13 no. 3
Type: Research Article
ISSN: 1755-4179

Keywords

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