Does diversification protect European banks’ market valuations in a pandemic?

Simoens, Mathieu; Vennet, Rudi Vander

doi:10.1016/j.frl.2021.102093

Cited by 18 publications

(11 citation statements)

References 26 publications

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“…The results are also in line with the results of Dadoukis et al, who indicates that larger banks and those who were better IT equipped in the pre-pandemic period during the first quarters of the pandemic, better maintained their market position, profitability, and financial stability [53]. Additionally, larger banks have more capacity to introduce non-interest services for diversification of income and improvement of profitability [54][55][56][57].…”

Section: Results Of Modelling and Discussionsupporting

confidence: 89%

The Impact of COVID-19 on Bank Equity and Performance: The Case of Central Eastern South European Countries

Kozak

2021

Sustainability

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The purpose of this article is to examine the impact of the shock increase, in the value of nonperforming loans, on the equity level and profitability of 141 banks in 18 countries of Central Eastern South Europe (CESE). This study is important for assessing the financial stability of banks in this region in the face of the continuing negative effects of the COVID-19 pandemic. Based on the annual data, as of the end of 2020, from the S&P Global database, stress tests were carried out to check what value of NPL growth, over the next year, will lead to breach the regulatory capital requirements in domestic sectors and in individual groups of banks. The results indicate that the banks in CESE were well capitalized and had the ability to maintain capital requirements with a 12% increase in nonperforming loans. The resilience of domestic banking sectors varies, and it is higher in non-EU countries. Smaller and non-public banks show a greater ability to preserve the appropriate level of equity, although there is a risk that they may postpone the time of provisioning credit risk and additionally increase lending to lower the NPL ratio. Larger banks are more profitable in times of crisis. The results of the research are important for assessing the stability of the banking sector in CESE during the crisis and can be used by financial supervision of the region’s countries and banking market analysts.

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Section: Results Of Modelling and Discussionsupporting

confidence: 89%

The Impact of COVID-19 on Bank Equity and Performance: The Case of Central Eastern South European Countries

Kozak

2021

Sustainability

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“…(0) Does diversification protect European banks' market valuations in a pandemic? Simoens and Vennet (2022) * COVID-19 pandemic as exogenous shock to European bank valuations. * Functional diversification is a meaningful shock absorber.…”

Section: Summary Of Research Findings By Areamentioning

confidence: 99%

“…They find a significant increase in systemic risks in these countries. Financial sector diversification is a significant risk mitigator Simoens and Vennet (2022) . find that functional diversification and loan portfolio diversification mitigates banks’ stock market declines by 10 percentage points and 4 percentage points, respectively.…”

Section: Summary Of Research Findings By Areamentioning

confidence: 99%

COVID-19 and the Economy: Summary of research and future directions

Iyer

Simkins

2022

Finance Research Letters

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“…Also, the study recommended that Kenyan banks should depend on various sources of revenue in order to meet any economic crises. Additionally, Simoens and Vennet (2022) analyzed the effect of business diversification from different dimensions on banks' market valuations during the first wave of the COVID 19 pandemic using (56) European banks. The study included three dimensions of business diversification functional diversification, lending diversification, and geographic diversification.…”

Section: ‫ديسمبر‬ ‫الثانى‬ ‫العدد‬ ‫عشر‬ ‫الرابع‬ ‫المجلد‬ ‫واإلدارية...mentioning

confidence: 99%

“…‫ديسمبر‬ ‫الثانى‬ ‫العدد‬ ‫عشر‬ ‫الرابع‬ ‫المجلد‬ ‫واإلدارية‬ ‫المالية‬ ‫والبحوث‬ ‫للدراسات‬ ‫العلمية‬ ‫المجلة‬ 2022 5 some studies proved that business diversification negatively affects banks' risks and performance (e.g., AlKhouri and Arouri, 2019;Ngoc Nguyen, 2019;Ovi et al, 2020). Moreover, some studies found that there is no significant impact of business diversification on banks' risks and performance (e.g., Raei et al, 2016); Abuzayed et al, 2018;Simoens and Vennet, 2022). The reason of inconsistent results may be related to the trade-off between the benefits of business diversification and its costs, in other words, the implications of business diversification rely on the benefits and costs of its activities.…”

Section: Introductionmentioning

confidence: 99%

Business Diversification and Banks’ Performance: The Moderating Role of Credit and Liquidity Risk (Empirical Study)

Alsayed

Amirhom

Azzam

2022

المجلة العلمیة للدراسات والبحوث المالیة والإداریة‎

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The major objective of this study is to explore the moderating role of credit risk and liquidity risk on business diversification and banks' performance relationship, i.e., investigating the interaction relationship between banks' risks and business diversification on banks' performance. In light of this, the study also aims to examine the impact of credit risk and liquidity risk on banks' performance, especially in emerging countries like Egypt. Moreover, it seeks to test the effect of business diversification, through revenue diversification, asset diversification, and funding diversification, on banks' performance. This study depends on a sample consisting of 10 banks over the period from 2012 to 2021. The findings indicate that credit risk has a negative impact on banks' performance, whereas liquidity risk has a positive impact on banks' performance. Also, revenue diversification and asset diversification have a positive effect on credit risk, and only asset diversification has a positive effect on liquidity risk. Furthermore, all activities of diversification have an insignificant impact on banks' performance. The most important result is that credit risk and liquidity risk moderate business diversification and banks' performance relationship as credit risk changes the effect from an insignificant negative impact to a significant positive effect. Also, credit risk adjusts the impact of asset diversification from an insignificant positive impact on banks' performance to a significant positive impact. Furthermore, liquidity risk is able to convert the impact of revenue diversification on banks' performance from an insignificant negative impact to a significant negative impact.

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Does diversification protect European banks’ market valuations in a pandemic?

Cited by 18 publications

References 26 publications

The Impact of COVID-19 on Bank Equity and Performance: The Case of Central Eastern South European Countries

The Impact of COVID-19 on Bank Equity and Performance: The Case of Central Eastern South European Countries

COVID-19 and the Economy: Summary of research and future directions

Business Diversification and Banks’ Performance: The Moderating Role of Credit and Liquidity Risk (Empirical Study)

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