Impact of ownership structure on risk-taking behavior of South Asian banks

Abstract

The implementation of an effective risk management policy is necessary for the survival and success of banks. Ownership structure changes the risk-taking behavior of banks. Therefore, we analyze the impact of the ownership structure on risk-taking behavior of banks in emerging markets (i.e., Pakistan, India, and Bangladesh). We take public, private and foreign ownership of banks in this study. We collect the data from 64 banks of selected countries from 2011 to 2018. We measure risk-taking as capital adequacy, leverage coverage ratio, non-performing loan ratio, and return volatility. We use two-step system dynamic panel estimation for analyzing the results. We find that public and private banks have significant relationship with the risk-taking of banks. Furthermore, public and private banks show more risk-taking behavior as compared to foreign banks in all selected countries.

Formulation of a corporate governance index for banking sector: The GIB.X62

“…An independent internal audit committee is a key success factor within banking sector due to its role in controlling and monitoring the operational and financial processes [ 23 ]. This committee also must monitor the governance structure and control all types of procedures.…”

Financial intermediation through risk sharing vs non-risk sharing contracts, role of credit risk, and sustainable production: evidence from leading countries in Islamic finance

“…However, lending growth relies on financial liberalization and banking reforms, which at some point is negatively affected by the selection of subprime customers that gives rise to weaker asset quality (Aysan & Ozturk, 2018 ). Similarly, the higher non-performing assets (herein after NPA) negatively affect bank’s profitability (Epure & Lafuente, 2015 ; Das & Uppal, 2021 ; Hunjra et al, 2020 ; Musneh et al, 2021 ; Ahmed et al, 2022 ), which enhances the financing cost, and reduces the supply of future credits (Aiyar et al, 2015 ). The private sector predicts the future credit default of banking companies and uses it as a driving force to make decisions and gain confidence in expanding or contracting their credit exposure in future (Bordalo et al, 2018 ).…”

Impact of Ownership Structure on the Performance & Profitability of Banks.

“…Moreover, Bank shareholders want to maximize their values by increasing the riskiness of the assets and managers in order to protect their positions with banks and are interested in keeping moderate risk. the impact of ownership structure on risk-taking behavior of public and private banks have significantly more relationship than the foreign banks (Hunjra & Mehmood, 2020). Accordingly, organizations must implement ownership risk management policies large size banks and well-developed banks are using this model whereas(Moudud-Ul-Huq Syed, 2020) the old private sector banks and public sector banks are lagging behind.…”

“…Accordingly, organizations must implement ownership risk management policies large size banks and well-developed banks are using this model whereas(Moudud-Ul-Huq Syed, 2020) the old private sector banks and public sector banks are lagging behind. (Tandon & Mehra, 2017) Commercial banks listed in India states that government ownership and foreign ownership have a positive impact on the default risk and a negative impact on the profitability of the banks (Faizul, 2018).Similarly ownership reforms found to be efficient with the domestic banks when compared with the foreign counterparties (Padmasai, 2014)Moreover, the public and the private banks in India, Bangladesh, and Pakistan seem to have an impact on the bank's risks, whereas; the foreign ownership does not show much impact because the foreign banks are not yet developed in the south Asian countries (Hunjra & Mehmood, 2020). Significantly the ownership structure and the ownership concentration in Chinese banks indicate that the ownership type has a positive impact on the credit risk The ownership concentration on Islamic banks shows that the family and state ownership have a positive impact on the bank's performance and, the banks with Institutional and bank's ownerships are not able to perform efficiently.…”

“…Commercial banks with high ownership concentration led to an increase in-risk-taking, which leads to moral hazard problems in institutions Evidences from the banks in Spain determines that the bank being as a shareholder signifies strong effects on banks ownership on the debt maturity and cost on debt (Fernandez, 2019)In south Asian countries the foreign ownership does not have a significant on bank's risktaking because they have not yet developed in the south Asian countries. The foreign banks in Bangladesh have a significant impact on the risk-taking behavior of banks when compared with the banks in Pakistan because the foreign investors have much trust in Bangladesh banks because the political stability is more when compared with Pakistan and India (Hunjra & Mehmood, 2020)In South African bank's it was found that banks with moderate ownership concentration and when banks are under-capitalized, the propensity of smooth income is significantly reduced(Uadiale.O, 2017)In the Philippines bank's it was found that the minority foreign owners have a positive impact on domestic bank's performance. The minority foreign ownership on domestic banks depends on the level of control exercised by the shareholders(Tacneng.R, 2015) The ownership of banks does not differentiate based on the local, foreign banks but based on their ROA and Mar.…”