The credit expansion policy and banking regulations have attracted widespread attention of bank regulators and policymakers over the last few years. This research aims to examine how the interest rate, prudential capital, and their interaction impact banking profitability in emerging economies like Egypt. The final sample of banks registered by the Central Bank of Egypt comprises 22 banks during the period of 2011–2020. The cross-sectional time-series Generalized Least Squares (GLS) regression approach is used to estimate the panel data. The findings confirm that low-interest rates indeed harm banks’ profitability. In addition, higher prudential capital enhances the profitability of banks. Importantly, the impact of low-interest rates on bank profitability can be diminished only when banks are maintaining higher prudential capital. Based on the findings, it is recommended that bank managers and policymakers in Egypt as well as in similar emerging economies shall promote the application of the Basel Capital Accord to increasingly strengthen the profitability of banks, which in turn reinforces the performance of the banking sector, especially during low-interest rate times. The findings also reveal that bank-specific characteristics such as large bank size, increased efficiency, and less concentrated market enhance banks’ profitability. Overall, the findings of this research are highly relevant since improved profitability is one of the main objectives of bank supervisors and regulators. AcknowledgmentsThe authors are grateful to Mr. Ali Shaker and Amira Ragab for their valuable support.
PurposeThis study aims to investigate the impact of cash holding (CH) on bankruptcy (BR) risk. This study also examines the moderating effect of corporate social responsibility (CSR) practices on this relationship.Design/methodology/approachThe data were extracted from firms' annual reports. The panel data were used for 68 firms listed at the Egyptian Stock Exchange (EGX) with a total of 340 observations from 2015 to 2019. The research hypotheses were tested using the panel corrected standards errors (PCSE) method and the feasible generalized least squares (FGLS) method.FindingsThe results reveal that (1) CH has a positive effect on the Z-score (decreasing bankruptcy risk) of the Egyptian listed firms. (2) Egyptian firms that practice CSR have a low level of bankruptcy risk. (3) CSR practices in Egyptian listed firms support the positive relationship between CH and Z-score (declining bankruptcy risk).Research limitations/implicationsThe limitations of this study include a relatively small sample size. In addition, the analysis doesn't include other measures of bankruptcy risk due to a lack of data.Practical implicationsThe findings of this study will help investors and creditors to evaluate and predict the firms' bankruptcy risk. This study highlights the importance of cash holding for firms in emerging economies. Firms may hold cash to support liquidity, overcome financial distress risk, lower the cost of capital, increase future investment opportunities and reduce uncertainty. Additionally, the results would also help the policymakers, regulators at the EGX and Financial Regulatory Authority and stakeholders to realize the importance of cash holding, evaluate the cash liquidity in Egyptian listed firms, predict the firms' financial distress and consider the consequences of the CSR practices in accordance with Egypt's vision 2030.Originality/valueConsistent with liquidity preference theory and trade-off theory, this study adds evidence to the literature on bankruptcy risk by investigating the effect of cash holding on bankruptcy risk in emerging economies. According to Egypt's vision 2030, the empirical findings in this study extend previous findings by providing strong additional evidence in emerging economies regarding the moderating effect of CSR practices on the association between cash holding and bankruptcy risk. To the best of our knowledge, this study is the first to investigate the relationship between CSR, CH and BR risk in Egypt.
This research examines the impact of interest rates on the risk-taking appetite of banks in Egypt and how income diversity influences their risk-taking. Furthermore, it contributes to the literature by investigating the association between the interacting effect of interest rate and income diversity shares on bank risk-taking. The sample includes 22 banks operating in Egypt spanning from 2011 to 2020. For the analysis, the cross-sectional time-series generalized least squares regression (GLS) approach is employed. The results reveal that low-interest rates exacerbate bank risk-taking. In addition, larger income diversity restricts the risk-taking behavior of banks. Importantly, the results show that banks with higher levels of income diversity push for less risky positions during the low-interest rate period. Hence, the results provide valuable insights into the importance of the moderating role of income diversity strategies. The results are robust to different proxies of bank risk-taking. The policy implications from this research indicate that bank managers and regulators in Egypt as well as in similar emerging economies shall promote income diversity strategies to ensure the safety and soundness of the banking system at times of low-interest rates.
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