Search results

1 – 10 of over 15000
To view the access options for this content please click here
Article
Publication date: 1 January 2001

Hubert Shen

This article addresses the issue of cumulative losses that fund managers, reinsurers, and bankers all face. The author shows how to estimate expected multi‐period…

Abstract

This article addresses the issue of cumulative losses that fund managers, reinsurers, and bankers all face. The author shows how to estimate expected multi‐period (cumulative) losses, given projections of single‐period trading losses or insurance claims. For fund managers, these results provide guidelines for interpreting the fund's daily Value‐at‐Risk (VaR) in cumulative‐loss terms, for calibrating the short‐ and long‐term risk appetites of the fund against each other, and for setting loss limits. For bankers, these results have direct implications for the range of validity of the much‐debated regulatory mandate for international banks to hold in reserves three times their VaR.

Details

The Journal of Risk Finance, vol. 2 no. 2
Type: Research Article
ISSN: 1526-5943

To view the access options for this content please click here
Article
Publication date: 11 July 2018

Gary W. Brester and Myles J. Watts

The safety and soundness of financial institutions has become a leading worldwide issue because of the recent global financial crisis. Historically, financial crises have…

Abstract

Purpose

The safety and soundness of financial institutions has become a leading worldwide issue because of the recent global financial crisis. Historically, financial crises have occurred approximately every 20 years. The worst financial crisis in the last 75 years occurred in 2008–2009. US regulatory efforts with respect to capital reserve requirements are likely to have several unintended consequences for the agricultural lending sector—especially for smaller, less-diversified (and often, rural agricultural) lenders. The paper discusses these issues.

Design/methodology/approach

Simulation models and value-at-risk (VaR) criteria are used to evaluate the impact of capital reserve requirements on lending return on equity. In addition, simulations are used to calculate the effects of loan numbers and portfolio diversification on capital reserve requirements.

Findings

This paper illustrates that increasing capital reserve requirements reduces lending return on equity. Furthermore, increases in the number of loans and portfolio diversification reduce capital reserve requirements.

Research limitations/implications

The simulation methods are a simplification of complex lending practices and VaR calculations. Lenders use these and other procedures for managing capital reserves than those modeled in this paper.

Practical implications

Smaller lending institutions will be pressured to increase loan sector diversification. In addition, traditional agricultural lenders will likely be under increased pressure to diversify portfolios. Because agricultural loan losses have relatively low correlations with other sectors, traditional agricultural lenders can expect increased competition for agricultural loans from non-traditional agricultural lenders.

Originality/value

This paper is novel in that the authors illustrate how lender capital requirements change in response to loan payment correlations both within and across lending sectors.

Details

Agricultural Finance Review, vol. 79 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

To view the access options for this content please click here
Article
Publication date: 13 April 2012

Fang Sun, Xiangjing Wei and Yang Xu

The purpose of this paper is to investigate two audit committee characteristics – independence and expertise of the audit committee – and the property‐liability insurers'…

Abstract

Purpose

The purpose of this paper is to investigate two audit committee characteristics – independence and expertise of the audit committee – and the property‐liability insurers' financial reporting quality, which is proxied by loss reserve error.

Design/methodology/approach

The authors' hypotheses are tested using multivariate analysis where the loss reserve error is the dependent variable, and audit committee independence, and four types of audit committee financial expertise (accounting, finance, supervisory, and insurance expertise) are the testing variables.

Findings

It is found that accounting, finance, and insurance financial expertise are associated with more accurate loss reserve estimate. In contrast, a supervisory financial expertise and an independence audit committee are not found to be associated with better loss reserve quality.

Research limitations/implications

The sample includes publicly‐held property‐liability insurers. Although the results from publicly‐held insurers could provide a good laboratory for such investigation in all insurers, they might be limited due to different organization structures of public vs private insurers.

Practical implications

The implications of the study are important for the SEC and NAIC. The results suggest that the requirements on the audit committee financial expertise would be necessary, even in highly regulated industry, such as property‐casualty insurance.

Originality/value

The paper contributes to the extant literature by studying audit committee characteristics in the insurance industry. It also contributes to the extant literature on audit committee effectiveness by decomposing the financial expertise into four types of financial expertise (accounting, finance, supervisory, or insurance expertise) and investigates which (if any) of these four types of expertise really drives the improvement of loss reserve quality.

To view the access options for this content please click here
Article
Publication date: 19 May 2014

Enoch Nii Boi Quaye, Charles Andoh and Anthony Q.Q. Aboagye

The purpose of this study is to assess the level and variability of Ghanaian property and liability insurer’s reserve estimates to examine its sources and ascertain if…

Abstract

Purpose

The purpose of this study is to assess the level and variability of Ghanaian property and liability insurer’s reserve estimates to examine its sources and ascertain if reserve errors are random or not (i.e. manipulated or not).

Design/methodology/approach

It uses information on insurer claim reserve provisions, claims outstanding, claims incurred and claims paid for the period of 2000-2010. Categorizing the sources of variation as endogenous and exogenous, the authors use the panel correlated standard error regression model to determine sources and magnitude of industry reserve error.

Findings

The study finds that size, age, lag of loss reserve error, inflation rate and real gross domestic product are significant in determining the degree of reserve error variation. Type of ownership (domestic or foreign) is, however, not a significant source of variation. Further, the authors found that industry reserve errors are random (not manipulated) across firms, suggesting that sampled insurers act independently on reserve error decision making and are not influenced by industry trends and competition.

Research limitations/implications

The main research study limitation is the difficulty involved in obtaining annual statements from insurance companies in Ghana. Reluctance of companies to make statements available impeded on the smooth flow of the study during data collection.

Practical implications

Policy-wise, this suggest that regulatory bodies can uniquely set reserve error levels for existing firms with little influence on competition. Further, the Ghanaian insurance regulator does not to focus on the type of ownership (foreign or local) when setting regulatory standards. However, size of the company and age (length of operation) should be considered.

Originality/value

This paper is the first empirical study to examine the loss reserve error and loss reserve variability of Ghanaian property and liability insurance companies.

Details

The Journal of Risk Finance, vol. 15 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

To view the access options for this content please click here
Article
Publication date: 5 May 2002

Richard L. Gallagher

A simulation methodology is applied to the loan loss reserve process of an agricultural lender. Weaknesses of the point‐estimate approach to estimating loan loss reserves

Abstract

A simulation methodology is applied to the loan loss reserve process of an agricultural lender. Weaknesses of the point‐estimate approach to estimating loan loss reserves are addressed with a “bottom‐up” model. Modeling includes consideration of the producer’s and the lender’s diversification efforts. Implementation of this model will provide the lender a better understanding of the institution’s portfolio risk, as well as the credit risk associated with each loan. This study compares the lender’s loan loss estimates to a distribution of losses with associated probabilities. The comparative results could provide the lender a basis for setting probability levels for determining the regulatory required level of loan loss reserve.

Details

Agricultural Finance Review, vol. 62 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

To view the access options for this content please click here
Article
Publication date: 1 February 1993

Richard Dobbins

Sees the objective of teaching financial management to be to helpmanagers and potential managers to make sensible investment andfinancing decisions. Acknowledges that…

Abstract

Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.

Details

Management Decision, vol. 31 no. 2
Type: Research Article
ISSN: 0025-1747

Keywords

To view the access options for this content please click here
Article
Publication date: 1 October 2002

Mostaque Hussain, Mazhar M. Islam, A. Gunasekaran and Kooros Maskooki

In recent years, there has been a growing tendency to establish closer ties among the Gulf Cooperation Council (GCC) countries (Bahrain, Saudi Arabia, Oman, Qatar, and…

Abstract

In recent years, there has been a growing tendency to establish closer ties among the Gulf Cooperation Council (GCC) countries (Bahrain, Saudi Arabia, Oman, Qatar, and United Arab Emirates) in economies and financial institutions. As a result, there is an increasing need for the harmonization of accounting regulations in order to improve cooperation and enhance the efficiency of the financial institutions among GCC countries. This study is an investigation of the accounting standards followed by the financial institutions in five GCC countries with some policy prescriptions for harmonization of the accounting regulations in GCC countries. This paper deals with accounting policies and practices, including loans and provisions, assets, investments, taxation, liabilities, foreign exchange, revenue recognization, and consolidation of GCC countries’ banking and other financial institutions.

Details

Managerial Auditing Journal, vol. 17 no. 7
Type: Research Article
ISSN: 0268-6902

Keywords

To view the access options for this content please click here
Article
Publication date: 27 September 2011

Neila Boulila Taktak

The purpose of this paper is to examine empirically the nature of smoothing returns practices in a sample of 79 Islamic banks across 19 countries during the period 2001‐2006.

Abstract

Purpose

The purpose of this paper is to examine empirically the nature of smoothing returns practices in a sample of 79 Islamic banks across 19 countries during the period 2001‐2006.

Design/methodology/approach

Previous researchers' methods, based on the variation and determination coefficients, are used in this study to detect the smoothing practices.

Findings

Results indicate that the revenues from the “Shariah‐based products” derived from the profit and loss sharing principle show higher variability than the “Shariah compliant revenues” and that income from this source is relatively lower. They also show that a large number of Islamic banks engage in natural income smoothing. Based on the determination coefficient results, 70 per cent of banks were found to have less smoothed total revenue than their net income. Results based on variation coefficient further confirm this finding, with 67 banks having a coefficient of total revenue higher than that of the net income.

Practical implications

The results suggest that Islamic banks should strengthen the use of smoothing techniques, such as the profit equalization reserves (PER) and the investment risk reserves (IRR), as they allow them to further stabilize the revenues payout for the investment account holders (IAH) and therefore mitigate withdrawal risk. Standardizing the smoothing techniques could be a solution to overcome the variability of this category of revenue.

Originality/value

This work is the first of its kind for Islamic banks. It extends previous research by examining whether or not managers may smooth their results naturally or intentionally. It also helped to bridge the gap in the literature by providing the empirical evidence on the smoothing returns in Islamic finance.

Details

Journal of Islamic Accounting and Business Research, vol. 2 no. 2
Type: Research Article
ISSN: 1759-0817

Keywords

To view the access options for this content please click here
Book part
Publication date: 19 November 2018

Ahmad Azam Sulaiman @ Mohamad, Mohammad Taqiuddin Mohamad and Siti Aisyah Hashim

Purpose – This research analyses the stability of a number of banks operating in Malaysia by using descriptive statistical analysis based on internal variables. These…

Abstract

Purpose – This research analyses the stability of a number of banks operating in Malaysia by using descriptive statistical analysis based on internal variables. These include the characteristics of the bank, capital adequacy ratio, ratio of profitability, liquidity ratio and the ratio of bank operations.

Methodology/approach – Each bank’s stability is studied using z-score analysis. Data are sourced from the balance sheets and income statements of the banks from 2000 to 2011.

Findings – The results indicate that characteristics of a bank do influence a bank’s performance. There are significant differences in financial ratios between Islamic and conventional banking. Islamic banks provide a lower loan loss of capital to cover impaired loans than conventional banks. This provides high capital based on the mean value obtained. The capital ratio allows both sets of banks to meet the capital adequacy ratio set by the Central Bank of Malaysia. Meanwhile, in profitability ratios, conventional banks have higher returns on higher assets, whereas Islamic Banking has higher returns on higher equity. Only 8 Islamic banks and 11 conventional banks are highly stable banking institutions in Malaysia.

Originality/value – Islamic and conventional banking systems in Malaysia need further improvement to deal with unexpected economics crises and increased competition between the two. Hence, Islamic banking must be refined, especially for improving their stability to attract more investments for further development and performance.

Details

New Developments in Islamic Economics
Type: Book
ISBN: 978-1-78756-283-7

Keywords

Content available
Article
Publication date: 3 December 2018

Tra Thanh Ngo, Minh Quang Le and Thanh Phu Ngo

The purpose of this paper is to incorporate risk in technical efficiency of ASEAN banks in a panel data framework for the period 2000 to 2015.

Abstract

Purpose

The purpose of this paper is to incorporate risk in technical efficiency of ASEAN banks in a panel data framework for the period 2000 to 2015.

Design/methodology/approach

The directional distance function and semi-parametric framework are employed to estimate efficiency scores for two scenarios, one with only good outputs and the other with a combination of good and bad outputs.

Findings

The findings show there is no evidence of technological progress for banks in ASEAN and concerns about the outperformance of Vietnam’s banks. In addition, performance of Vietnam’s banks tends to be distorted by low level of loan loss reserves.

Practical implications

To reflect the true performance and shorten the period of removing bad assets, the State Bank of Vietnam can request banks in Vietnam to book more loan loss reserves.

Originality/value

By examining such a new approach, this study makes an early attempt to incorporate credit risk into the banking efficiency in ASEAN region.

Details

Journal of Asian Business and Economic Studies, vol. 26 no. 1
Type: Research Article
ISSN: 2515-964X

Keywords

1 – 10 of over 15000