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The purpose of this paper is to test whether diversification of credit portfolios across economic sectors leads to improved profitability and reduced credit risks for Ghanaian banks that have been characterized by high non-performing loans in recent times (IMF, 2011).

Static and dynamic estimations, namely Prais-Winsten, fixed and random effect estimators, feasible generalized least squares as well as the system generalized methods of moments are employed on the annual data of 30 Ghanaian banks that operated between 2007 and 2014 to determine the effect of loan portfolio diversification on bank performance.

The study shows that loan portfolio diversification does not improve banks’ profitability nor does it reduce banks’ credit risks.

The study focuses on a single banking system in Africa largely as a result of data limitation.

The study emphasizes the need for banks to perform a careful assessment of the effects of their lending policies geared toward increased sectoral diversification on their monitoring efficiency and effectiveness. A further investment in loan screening and monitoring is necessary to minimize credit risks.

This study is the first to present empirical evidence on the effects of loan portfolio diversification on bank performance in an emerging banking market in Africa.

Keeping in view the robust growth of Islamic banking around the globe, this study aims to comparatively analyze the association between liquidity creation and liquidity risk for Islamic banks (IBANs) and conventional banks (CBANs) in Pakistan and Malaysia over a period of 2004–2021. The moderating role of bank loan concentration on the aforementioned relationship is also studied.

Regression estimation methods such as fixed effect, random effect and generalized least square are deployed for obtaining results. Liquidity creation Burger Bouwman measure (cat fat and noncat fat) and Basel-III liquidity risk measure (liquidity coverage ratio) are also used.

The results give us insight that liquidity creation is positively and significantly related to liquidity risk in both IBANs and CBANs of Pakistan and Malaysia. This relationship has been moderated negatively (reversed) and significantly by credit concentration showing the importance of risk management and loan portfolio concentration.

It is analyzed that during the process of liquidity creation, IBANs in Pakistan faced more liquidity risk for both on and off-balance sheet transactions in the presence of moderation of loan concentration than IBANs in Malaysia necessitating strategic policy-making for important aspects of liquidity risk management and loan concentration while creating liquidity.

Such studies comparing IBANs and CBANs comparison keeping in view liquidity creation, liquidity risk and loan concentration are either limited or nonexistent.

The survivorship of firms under extreme weather poses an essential question about the local economy's health. Over 90% of agricultural banks are categorized as community banks, which are important financial institutions promoting local growth. While previous studies suggest that climate change and weather shocks adversely impact community banks' resiliency, studies on whether these institutions engage in risk-reducing management strategies have been limited. In this study, the authors examine strategic choices of local community banks when facing flood events which include (1) safety net increase, (2) portfolio diversification, and (3) branch opening. These strategic choices are the coping mechanisms banks can take to survive while affecting the local competitive lending market.

The authors use panel-fixed effect regressions based on the storm data from National Oceanic and Atmospheric Administration (NOAA)'s National Weather Service (NWS) and the call reports from the Federal Deposit Insurance Corporation (FDIC). The authors focus on community banks' account variable characteristics and the number of offices to examine whether community banks take an active role in managing flood risk.

Results suggest that community banks do employ the selected strategic choices to a certain degree, as it is found that there is an increase in the core capital that absorbs shocks and portfolio diversification. However, the magnitudes of these activities are rather small and not large enough to fully mitigate the climate risk. Also, the authors do not find any evidence of branch expansion associated with local floods.

This study contributes to the literature by examining different strategic choices of community banks in the face of natural uncertainty. Even though concerns of climate risk have been raised in the regulatory setting, a lack of guidance or assessment tools could contribute to the passive action of these community banks, even though climate risks can have a significant economic impact. Thus, the evidence documented from this study calls for further guidelines and the importance of highlighting climate risks on community banks so that they can actively engage in risk-reducing strategies.

The purpose of this paper is to investigate the effect of a focus loan strategy on Islamic banks’ (IB) performance in three areas: sectoral, geographic and the type of Islamic instrument. This paper specifically addresses two questions. First, should IBs focus or diversify their loan portfolios? Second, how does focus in lending affect IBs’ returns and risk?

The panel generalized linear squared method was used for regressions throughout the paper. Data used in the analysis were extracted from IBs’ publicly available regulatory reports in the Gulf Cooperation Council countries. The sample is an unbalanced panel that includes financial data on 26 banks during the period 2010–2018.

Focusing on Islamic instruments and economic sectors would harm IBs’ profitability while reducing their risks. Geographic focus increased the profitability of IBs, but it also increased their default risk. The focus in Islamic instruments was beneficial when risk is low to moderate, but when the risk of an IB increased, it was better to diversify across Islamic instruments. Focus in geographical areas, on the other hand, had a non-linear U-shaped relationship with return, which means that when IBs’ risk is high, focusing their loans in one geographic area enhances their returns.

This paper fills the existing gap in Islamic banking literature regarding the focus/diversification dilemma. It is the first attempt to study the effect of focus in three areas (sectoral, geographic and instrument used) on the return and risk of IBs.

The purpose of this paper is to determine the impact of loan concentration on the returns of Indonesian banks and examines whether bank ownership types affect the relationship between concentration and returns.

This research uses heuristic measures of concentration: The Hirschman–Herfindahl index and Deviation from Aggregated Averages are applied to Indonesian banks across all sectors. The data covers the pre and post global financial crises periods from 2003-2011 for 109 commercial banks in Indonesia. Panel feasible generalised least squares analysis was applied.

The findings show that loan concentration increases bank returns. The positive effect of concentration on returns tends to be more significant for domestic-owned banks. In addition, the interaction effect shows that the positive effect of concentration on returns is less for foreign-owned banks.

The Indonesian central bank changes to the reporting format of sectoral loan allocation by banks since 2012 in terms of the Indonesian Banking Statistics Details of Enhancement matrix requires separate data analysis for 2012 onwards. The findings of this paper could be enhanced by more detailed data like interest rate expenses and bank level sectoral non-performing loans data.

The findings suggest that a focus strategy provides better returns. Moreover, bank ownership types is an important factor to consider when setting a bank lending policy.

This paper is among the few studies where different measures of loan concentration in combination with measures of return are applied in Indonesia as an emerging Asian country. The research also provides evidence of the impact of concentration on the interest earnings of the loan portfolios of banks in addition to return on assets and return on equity that are generally applied as measures of return in previous research.

This study aims to determine how Basel III capital requirements affect the stability of Islamic banks globally during the global financial crisis and the COVID-19 pandemic.

The secondary data for all Islamic banks worldwide from 2004 to 2021 is obtained from the FitchConnect database. The main technique was a two-step generalized method of moment (GMM) system, and the data were tested using pooled ordinary least squares, fixed effects and difference GMM models for robustness checks.

Regression results support the moral hazard hypothesis based on evidence that both the total capital ratio and the Tier 1 capital ratio have a statistically significant positive impact on the stability of Islamic banks globally. Furthermore, neither the global financial crisis of 2008–2009 nor COVID-19 (2020–2021) significantly impacted the stability of Islamic banks worldwide. The results are robust across alternative measures of stability, capital buffers, dummy variables and estimation techniques. According to the descriptive statistics, the number of Islamic banks that disclose their regulatory capital ratios to the public has increased over the study period, and the mean of total capital and Tier 1 ratios are considerably greater than what is required by Basel II and Basel III.

Bankers, regulators and policymakers should benefit from the evidence on capital and risk management in Islamic banking according to Basel Committee on Banking Supervision (BCBS) and Islamic financial services board (IFSB) international standards in various jurisdictions.

This research builds on earlier studies that were both beneficial and instructive by exploring the relationship between BCBS and IFSB capital guidelines and the trustworthiness of Islamic banks in greater depth. This study uses numerous capital ratios, buffers and stability measures to provide an international context for research on Islamic banking. In addition, the database is up-to-date to include information about the COVID-19 pandemic aftereffects in the year 2021. This study also introduces the Basel membership of Islamic banks to provide context for countries still at the Basel II stage or are yet to begin implementing the Basel III international standard.

This paper aims to examine the consequences of banks asset, funding and income diversification on regional economic stability in the USA by using data on all 50 states and Washington, DC for 17 industries and their disaggregated constituent categories.

By using a panel dataset across industries and states in the USA, the author explains sector-specific state-level variation in average GDP growth during 2008-2009 using the average bank diversification during 2006-2007, as well as pre-crisis level growth rates in GDP, multifactor productivity in each industry and pre-crisis period state-specific key banking conditions.

The author finds banks’ pre-crisis level of diversification to have a positively significant impact on sector-specific state-level GDP growth during the Great Recession. The positive impact of banks diversification activities on industry-specific output growth across states is most pronounced for funding diversification.

The results indicate that bank diversification activities could be used as a measure to resuscitate an ailing economy and enhance the resilience of the real sector to financial sector distress. The same applies for banks capitalization and profitability.

Although a burgeoning body of literature has examined different aspects of banks income diversification, focusing mainly on its effects on risk and returns, the real sector implications of bank diversification activities have been rarely studied, especially in the US context.

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.

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.

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.

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.

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.

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.

The purpose of this paper is to test the extent to which company-specific attributes including market capitalisation, capital structure and investment focus impact upon the performance of European listed real estate companies. Enhanced understanding of firm-level performance drivers is important for investors in order to diversify their investment portfolios and to mitigate company-specific risks at different points in the real estate cycle.

The study centres on six key listed European real estate markets selected on the basis of market capitalisation, diversity, transparency and maturity. A series of statistical tests are undertaken using EPRA and Bloomberg data for the period of 2007–2017 using 113 listed property companies, all of whom were contemporaneous constituents of EPRA indices in this period. A series of customised performance indices were constructed to evaluate firm-level performance attributes.

Firm-level attributes collectively account for more variation of risk-adjusted return than sector-level attributes over the investigation period. The impact of firm-specific attributes on performance varies significantly from country to country attributable to the contrasting cyclical property market trends in the pre– and post–Global Financial Crisis period. REITs outperformed non-REITs on a risk-adjusted basis attributed to the strong performance of “niche” market entrants allied with stronger regulatory structure. Finally, the findings showcase that sector specialist firms outperform diversified companies inferring that investors should seek to attain diversification through portfolio-based approaches rather than firm-level strategies.

The results have implications for real estate companies aiming to raise capital internally for growth as higher return on equity in general signals reduced cost of capital. Secondly, the findings should be of practical use to multinationals specialising in international real estate trading in designing their business plans in general and formulating cross-country investment strategies in particular. Last but not least, a more refined conceptualisation of corporate-level performance drivers should complement existing professional practices in relation to business/company appraisal.

The research integrates EPRA and Bloomberg data sets to create a series of bespoke index constructs to measure the impact of firm-specific attributes on European listed real estate companies. Additionally, the authors construct a Herfindahl Index (H.I.) to further the debate on the impacts of diversification within the listed real estate sector. This serves to further heighten investor understanding of investment allocation and portfolio optimisation strategies for the listed real estate sector given the increasingly diverse range of investment opportunities within emerging sub-markets.

In the economic literature, a crisis has been thematically defined around bank runs, failure of large financial corporations, and financial distress. Section 1 summarizes our learnings about international banking crisis, in terms of the origin and impact of such crises. This provides us an international benchmark before we delve deeper into India's banking distress, its size and trends. Section 2 focuses on the twin-balance-sheet crisis in India. On one side, corporate firms recklessly overleveraged, resulting in excess capacities and business diversification. On the other side, banks, both private and public, fell prey to excessive and procyclical credit lending and improper monitoring. Overall, too many projects were left too weakly monitored. Separately, we have focused on two subsections, first, how the financial institutions in India have overstretched their credit-disposal limit during market upturns. Second, we found absence of any theoretically grounded approaches to determine the capital-adequacy ratios (CARs) for the banks. In Section 3, we have identified the steps taken so far by the Banking regulator and the Government to resolve the crisis. Further, we critically examine the role of Korea Asset Management Corporation (KAMCO) towards a successful non-performing assets (NPAs) resolution in South Korea. Few key takeaways include, (1) establishing a public asset-management company (AMC) focused on maximization of recoveries and resolution of stressed assets, (2) well-defined governance structure for the AMC ensuring it works on market principles, shielded from political interferences, and (3) realistic asset valuation and transfer price that ensures limited downside risks for the public AMC.