Capital Regulation and Bank Risk-Taking Behavior: Evidence from Pakistan

Ashraf, Badar Nadeem; Arshad, Sidra; Yuan-cheng, HU

doi:10.3390/ijfs4030016

Cited by 60 publications

(72 citation statements)

References 55 publications

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“…Capital adequacy (CA) has shown a positive and significant relationship with risk-adjusted profits in Model 3, which implies that banks in South Asian countries are adequately capitalized and stable. This result is consistent with the findings of Ashraf et al (2016b) for Pakistani banks. Liquidity (LIQ) has also shown a positive and significant relationship with risk-adjusted profits in all three GMM models.…”

Section: Revenue Diversification and Bank Stabilitysupporting

confidence: 93%

The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries

Nisar

Peng

Wang

et al. 2018

IJFS

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This paper is a contribution to the ongoing debate on the benefits and drawbacks of bank revenue diversification. Revenue diversification may benefit banks if diversified activities are inherently less risky and possess high returns, while it may hurt banks if diversified activities are more risky and have low returns. Analyzing a panel dataset of 200 commercial banks from all South Asian countries, we found that overall revenue diversification into non-interest income has a positive impact on the profitability and stability of South Asian commercial banks. We further observed that different types of non-interest income-generating activities have different impacts on bank performance and stability. While fees and commission incomes have a negative impact on the profitability and stability of South Asian commercial banks, other non-interest income has a positive impact. Our results imply that banks can benefit from revenue diversification if they diversify into specific types of non-interest income-generating activities. Our findings are robust and relevant to the use of alternative measures of revenue diversification, profitability and stability.

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Section: Revenue Diversification and Bank Stabilitysupporting

confidence: 93%

The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries

Nisar

Peng

Wang

et al. 2018

IJFS

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“…Following Ashraf et al (2016c), we measure bank capital with two alternative proxies: OETTA and REG_CAP. OETTA equals the ratio of bank shareholders' equity over total assets.…”

Section: Authors' Ideamentioning

confidence: 99%

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Rahman

Ashraf

Zheng

et al. 2017

IJFS

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Over last two decades, emerging and developing nations have desperately endeavored for efficient banking sectors. In this study, we argue that bank efficiency generates incentives that can impact banks' capital holdings and the cost of financial intermediation. Analyzing a panel dataset of 1190 banks from BRICS (Brazil, Russia, India, China, South Africa) countries over the period 2007-2015, we find robust evidence that more efficient banks hold higher capital and charge lower financial intermediation costs. In an extended sample over the period 2000-2015, we observe that cost efficiency had a marginal positive impact on bank capital during the global financial crisis of [2007][2008][2009]. We also observe that on average, banks increased the cost of financial intermediation during the crisis, however, greater efficiency helped banks to not charge higher intermediation costs. Our results imply the beneficial impact of bank efficiency for bank stability and real economy.

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“…On the one hand, higher capital levels may adversely affect bank profits by reducing the debt in capital structure and, consequently, the tax shield provided by the deductibility of interest payments on the debt. Another way the higher capital requirements may reduce bank profits is that banks would reduce risk weighted assets to increase capital adequacy ratios [8]. A decrease in risk-weighted assets which are also considered interest earning assets would jeopardize banks' earning capacity.…”

Section: Introductionmentioning

confidence: 99%

Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

Zheng

Rahman

Begum

et al. 2017

JRFM

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Abstract:In response to the recent global financial crisis, the regulatory authorities in many countries have imposed stringent capital requirements in the form of the BASEL III Accord to ensure financial stability. On the other hand, bankers have criticized new regulation on the ground that it would enhance the cost of funds for bank borrowers and deteriorate the bank profitability. In this study, we examine the impact of capital requirements on the cost of financial intermediation and bank profitability using a panel dataset of 32 Bangladeshi banks over the period from 2000 to 2015. By employing a dynamic panel generalized method of moments (GMM) estimator, we find robust evidence that higher bank regulatory capital ratios reduce the cost of financial intermediation and increase bank profitability. The results hold when we use equity to total assets ratio as an alternative measure of bank capital. We also observe that switching from BASEL I to BASEL II has no measurable impact on the cost of financial intermediation and bank profitability in Bangladesh. In the empirical analysis, we further observe that higher bank management and cost efficiencies are associated with the lower cost of financial intermediation and higher bank profitability. These results have important implications for bank regulators, academicians, and bankers.

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Capital Regulation and Bank Risk-Taking Behavior: Evidence from Pakistan

Cited by 60 publications

References 55 publications

The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries

The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

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