Country Governance, Market Concentration and Financial Market Dynamics for Banks Stability in Pakistan

Abstract

Considering the country governance, market concentration and financial market dynamics are key explanatory indicators, this study has examined the stability trends in commercial banks of Pakistan. Overall sample of 28 banks is considered, adding both conventional and Islamic banks into consideration for the panel regression models like fixed effect and random effect. Findings for overall sample indicates that both stability measures in the form of z-score ROA and ROE are significantly and negatively affected by poor control over corruption, regulatory quality, market concentration, financial market development and increasing non-performing loans. For conventional banking, key determinants of financial stability are control over corruption, political instability, market structure and credit risk. For Islamic banking firms, corruption and government effectiveness, capital adequacy ratio, market structure and financial market development are significant determinants, affecting Z measures of stability. However, through lending interest rate, we do not find any significant relationship with both stability measures. Study findings are very useful for country officials, risk officers, and other stakeholders in financial markets who want to explore the relationship between country governance and financial market dynamics in the economy of Pakistan. In addition, study has experienced various limitations like non-consideration of bank-based and macroeconomic risk factors, international trends in banking and their influence on domestic banks of Pakistan, which could be reconsidered in coming research.

Halal-friendly tourism and factors influencing halal tourism

“…The concept of halal in the context of tourism is evidence of Islamic teachings involvement in every aspect of a Muslim since Islam is a comprehensive religion (Samori et al, 2014). The fundamental beliefs of Muslims are that Islam has a holistic and comprehensive concept and provides solutions to many problems and needs of Muslims through the implementation of various values contained therein Kamran et al, 2019). Halal terminology has a range of implementations including human relations, dress and behavior ethics, social and business transactions, trade, services and investments and other aspects in accordance with the principles and directives set forth in Islam (Samori et al, 2014), including the needs to travel that does not violate provisions regulated in Islam.…”

The Effect of Financial Inclusion and Competitiveness on Financial Stability: Why Financial Regulation Matters in Developing Countries?

“…The empirical literature on financial stability has used the Z-Score as a proxy to represent financial stability in banking (see, for example, the studies by Ahamed and Mallick 2019;Fang et al 2014;Feghali et al 2021;Han and Melecky 2013;Pham and Doan 2020). The Z-Score indicates the probability of bankruptcy of a bank and is interpreted as the number of standard deviations by which profits or returns can reduce before a bank's assets deplete or declare bankruptcy (Goetz 2018;Kamran et al 2019;MacHdar 2020;Toader et al 2018).…”

Bank Specific and Macroeconomic Factors Influencing Islamic Banks Deposits

“…Maji and Hazarika (2018) compute HHI based on bank deposits and found that a higher HHI value signals greater market concentration or less competition. Kamran et al (2019) measure the HHI by taking the sum of squares of the percentage of total deposits across all banks. The measurement of HHI is widely used to describe competition in the banking system in previous literature (Xia et al, 2021).…”