How Does Credit Risk Influence Liquidity Risk? Evidence from Ukrainian Banks

Cai, Ruoyu; Mao, Zhang

doi:10.26531/vnbu2017.241.021

Cited by 16 publications

(13 citation statements)

References 35 publications

(58 reference statements)

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“…This implies that solvency of banks leads to improved bank stability. This finding is consistent with corporate finance literature in literature on bank run and liquidity risk (Cai & Zhang, 2017), which argues that solvent or liquid firms have the ability to retire their debt obligations as and when they fall due, hence boosting public confidence in the bank and reinforcing stability.…”

Section: Resultssupporting

confidence: 91%

Sectoral Loan Portfolio Concentration and Bank Stability: Evidence from an Emerging Economy

Kusi

Adzobu

Abasi

et al. 2019

Journal of Emerging Market Finance

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In this study, the effect of sectoral loan portfolio concentration on bank stability is investigated in the Ghanaian banking sector between 2007 and 2014. Specifically, we investigate the linearity and non-linearity effects of sectoral loan concentration on bank stability given the limited exploration of this nexus. Employing a two-step generalized method of moments (GMM) robust random and fixed effects panel models of 30 banks, the study provides evidence showing that sectoral loan concentration weakens the stability of banks. This confirms the concentration-fragility hypothesis and the diversification theory of traditional banking but may promote bank stability beyond a certain threshold point. This implies that bank sectoral loan concentrate has a direct non-linear U-shape effect on bank stability in Ghana. We argue that although sectoral loan concentration may weaken stability of banks in the short run, it may however enhance the stability of banks in the long run through prolonged expert knowledge, experience and understanding of sectors. From these findings, policymakers, regulators and bank managers must not only develop and design policies and regulations that prohibit sectoral loan concentration but should also incorporate plans and policies that encourage banks to develop core competence and competitive advantage to take advantage of advancing bank stability through sectoral loan concentration. JEL Codes: G10; G18; G41

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Section: Resultssupporting

confidence: 91%

Sectoral Loan Portfolio Concentration and Bank Stability: Evidence from an Emerging Economy

Kusi

Adzobu

Abasi

et al. 2019

Journal of Emerging Market Finance

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“…The results indicated that Islamic banks have a greater failure risk than conventional banks. In addition, Cai and Zhang (2017) found that during financial stress periods, the credit risk leads to lower cash flow, which decreases the level of liquidity in banks. As regards to the relation between diversification, performance and financial stress periods, Vallascas et al (2011) found that diversified banks had recorded the highest drop in performance during the last financial crisis.…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

The impact of performance, liquidity and credit risks on banking diversification in a context of financial stress

Gafrej

Boujelbène

2021

IMEFM

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Purpose The purpose of this paper is to examine the relation “diversification-risk-performance” for Islamic and conventional banks in different financial stress levels. Also, it aims to investigate the impact of the structure of board directors, macroeconomic variables and banking specific factors on banking diversification. Design/methodology/approach The authors use generalized least squares regressions to examine the impact of banking specific, macroeconomic and governance variables on investment diversification of 66 Islamic and conventional banks during the period from 2006 to 2018. In addition, this study uses panel threshold regressions to study the impact of banks’ profitability and risks on investment diversification in different financial stress levels. Findings The findings show liquidity risk, performance, credit risk and capitalization ratio are significantly related to investment diversification of Islamic banks. On the other hand, liquidity and credit risks, capital to total assets ratio and size have a significant influence on investment diversification of conventional banks. In addition, the diversification strategy of Islamic banks is less sensitive to macroeconomic indicators. As regards to governance variables, the results suggest that the board size, the executive directors and the foreign directors have significant impact on the investment diversification in Islamic banks. On the other hand, chief executive officer duality and foreign directors affect significantly the investment diversification of conventional banks. This study also found that financial stress enables us to develop a better understanding of the relation “performance-risks and diversification.” Practical implications It is expected that the findings of this paper can be used by Islamic and conventional banks in Gulf Cooperation Council (GCC) region that seek to manage the diversification strategy by reducing risk-taking and maximizing profitability. This study suggests that bank managers should consider the level of financial stress during the development of diversification strategy. It provides a better understanding for bank managers about the effect of bank specific and macroeconomics factors as well as governance variables on diversification. Originality/value This study focuses on providing an extension of the existing literature by studying the impact of financial stress indices on the relation between banks’ risk-performance and investment diversification for Islamic and conventional banks in the GCC region.

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“…Both policymakers and academics grant more attention to this topic after the international financial crisis of 2008 (Berríos, 2013; Chen et al, 2018; Partovi & Matousek, 2019). Also, the link or the interaction between these two significant risks has received only limited attention (Malandrakis, 2014; Imbierowicz & Rauch, 2014; Hertrich, 2015; Cai & Zhang, 2017).…”

Section: Related Literaturementioning

confidence: 99%

Is there a threshold effect in the liquidity risk–non‐performing loans relationship? APSTRapproach forMENAbanks

2020

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This study analyzes the nonlinear relationship between liquidity risk and nonperforming loans (NPLs) for a sample of MENA banks over the period 2004-2017. Results of the Panel Smooth Transition Regression model indicate that there is a threshold effect in the liquidity risk and NPLs relationship. More specifically, we found that above the threshold of 73.10% for loans to deposits ratio, liquidity risk significantly increases the level of NPLs. However, below the threshold of 87.61% for liquid assets to deposits and short-term funding ratio, the NPLs are also significantly and positively correlated with the liquidity risk. Furthermore, we found that NPLs are more sensitive to bank performance, bank capital, bank size, international financial crisis, and the inflation rate. However, no significant effect was found for the impact of ownership concentration and board characteristics either below or above the thresholds.

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How Does Credit Risk Influence Liquidity Risk? Evidence from Ukrainian Banks

Cited by 16 publications

References 35 publications

Sectoral Loan Portfolio Concentration and Bank Stability: Evidence from an Emerging Economy

Sectoral Loan Portfolio Concentration and Bank Stability: Evidence from an Emerging Economy

The impact of performance, liquidity and credit risks on banking diversification in a context of financial stress

Is there a threshold effect in the liquidity risk–non‐performing loans relationship? APSTRapproach forMENAbanks

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