How does corruption undermine banking stability? A threshold nonlinear framework

Ali, Mohamed Sami Ben; Fhima, Fredj; Nouira, Ridha

doi:10.1016/j.jbef.2020.100365

Cited by 41 publications

(20 citation statements)

References 65 publications

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“…However, our results indicate that increase of corruption in an already corrupt environment could have a detrimental impact on the credit risk. Our results support Ali et al [4] that corruption allows defaulters to get access to risk credit through bribing lending authorities. Following the strong form hypothesis [39], we report a positive relationship between corruption and NPL for low corruption countries.…”

Section: Resultssupporting

confidence: 91%

Corruption and its diverse effect on credit risk: global evidence

Hasan

Ashfaq

2021

Futur Bus J

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Corruption has a complex relationship with economic growth. We have explored the impact of corruption on credit risk from a global perspective. The sample consists of 178 countries and covers 18 years that range from 2000 to 2017. Non-performing loan (NPL) is used as a proxy for credit risk and data regarding NPL is collected from the World Bank Database. Corruption scores are collected from the Transparency International reports. Panel regression results provide a positive association between corruption and credit risk for the global sample. Generalized Methods of Moments regression and robustness tests validate the findings. However, sub-sample analysis provides support for “grease the wheel” hypothesis for high corruption countries and indicates that corruption is beneficial in a weak form of governance and excessive regulatory pressure. This study advocate for the importance of strong governance mechanisms in high corruption countries that can minimize the impact of corruption on banking sector profitability and ensure economic development. Unlike past literature, we provide global evidence on the association between corruption and credit risk for the banking sector which allows generalizability.

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Section: Resultssupporting

confidence: 91%

Corruption and its diverse effect on credit risk: global evidence

Hasan

Ashfaq

2021

Futur Bus J

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“…In contrast, borrowers who already have these relationships and have easier access to bank credit are less likely to invest their funds efficiently (Houston, Lin, & Ma, 2011). A relatively recent empirical finding (Ben Ali, Fhima, & Nouira, 2020) shows that corruption can cause spatial fragility and increase the probability of a banking crisis.…”

Section: Regression Analysismentioning

confidence: 99%

Does Institutional Quality Matter in the Relationship Between Competition and Bank Stability? Evidence from Asia

Muizzuddin

Tandelilin

Hanafi

et al. 2021

JIEB

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Introduction/Main Objectives: This study aims to investigate whether competition impacts bank stability. Furthermore, the study also analyzes the role of institutional quality in a country, such as voice and accountability, political stability, government effectiveness, regulatory quality, the rule of law, and control of corruption, forming the effect of competition on bank stability. Background Problem: Analysis of the relationship between competition and bank stability has been at the center of academic and policy debate. However, the theoretical and empirical research has not concluded whether bank competition leads to more or fewer stable banks. Novelty: We consider institutional quality's role in mitigating the negative impact of competition on bank stability, which has mainly been under-elaborated in prior studies, particularly in using measures from The World Bank’s Worldwide Governance Indicators, which measure how the institutions of each country influence bankers’ and the people's behavior, as part of the cultural system. Research Methods: Using a sample of 427 Asian commercial banks from 2011 to 2019, we employ the generalized method of moments (GMM) estimator and consider loan growth and the cost to income ratio as instrumental variables. Findings/Results: We find robust evidence that competition erodes bank stability. Besides, better institutional quality, especially government effectiveness, regulatory quality, the rule of law, and corruption control in each country are important aspects that promote bank stability and mitigate the negative impact of competition on bank stability. Conclusion: Competition has a negative impact on bank stability. Meanwhile, the quality of institutions can both promote bank stability and mitigate this negative relationship.

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“…They determined the threshold for liquidity of 94.98% for both low-liquid banks and high-liquid banks. Ben Ali et al (2020) documented the effect of corruption on the occurrence of a banking crisis by using a threshold regression approach. The results reveal that corruption negatively affects the banks' lending through excessive risk rather than through their profitability.…”

Section: The Non-linear Relationship Between Npls and Bank Profitabilitymentioning

confidence: 99%

Non-Performing Loans and Net Interest Margin in the MENA Region: Linear and Non-Linear Analyses

Alnabulsi

Kozarević

Hakimi

2023

IJFS

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This paper analyzes the linear and non-linear relationship between non-performing loans and bank profitability measured by the Net Interest Margin for a sample of 74 Middle Eastern and North African banks over the period of 2005–2020. We used the System Generalized Method of Moments (SGMM) as a linear approach and the Panel Smooth Transition Regression (PSTR) model as a non-linear approach. The empirical results of the SGMM approach indicated that the ratio of NPLs negatively affects bank profitability. The findings of the non-linear relationship based on the PSTR model confirmed the existence of a threshold effect. We found that below the threshold of 4.42%, the effect of NPLs is negative but not significant, while after surpassing this threshold, the effect becomes negative and significant. As for bank specifics, we revealed that bank size is positively and significantly associated with bank profitability. For industry factors, we found that more bank concentration decreases bank profitability. Regarding the financial environment, we concluded that the global financial crisis exerted a negative impact on bank profitability. Moreover, we revealed a positive and significant impact of GDP on bank profitability as well as a negative impact of inflation on bank profitability. This study has some limitations regarding the social, economic, and financial differences of the whole sample, which includes banks from the Middle East and others from North Africa. Hence, decomposing the whole sample into two sub-samples could improve the results of this paper.

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How does corruption undermine banking stability? A threshold nonlinear framework

Cited by 41 publications

References 65 publications

Corruption and its diverse effect on credit risk: global evidence

Corruption and its diverse effect on credit risk: global evidence

Does Institutional Quality Matter in the Relationship Between Competition and Bank Stability? Evidence from Asia

Non-Performing Loans and Net Interest Margin in the MENA Region: Linear and Non-Linear Analyses

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