Risk and Performance in Emerging Economies: Do Bank Diversification and Financial Crisis Matter?

Ahmed

Chowdhury

et al. 2021

IMEFM

Self Cite

Purpose This study aims to investigate the relationship between capital regulation and risk-taking behavior (financial stability) concerning the impacts of the recent global (COVID-19) crisis and diverse ownership structure. Design/methodology/approach The analysis uses an unbalanced panel data set from 32 commercial banks of Bangladesh for 2000–2020. The authors use the two-step system generalized method of moments and three-stage least squares to produce the study outcomes. Findings The robust results reveal that the relationship between capital regulation and risk (financial stability) is negative (positive) and bi-directional. More significantly, COVID-19 makes banks fragile and demands more capital to absorb risk. However, the effect of COVID-19 is heterogeneous when the authors consider ownership structure. Among the diverse ownership styles, Islamic and active shareholding show their controlling wheel on capital regulation and risk-taking aptitude (financial stability) during the global (COVID-19) crisis. In normal economic conditions, private banks and minority active shareholding can be a good determinant for capital regulation and risk (financial stability). On the other hand, state-owned and large banks have been found as less capitalized and highly risky. Originality/value This study is the pioneer in exploring capital regulation and risk toward the recent global (COVID-19) crisis.

Section: Findings and Analysissupporting

confidence: 92%

How do banks’ capital regulation and risk-taking respond to COVID-19? Empirical insights of ownership structure

Ahmed

Chowdhury

et al. 2021

IMEFM

Self Cite

“…From Model I-Model VI, the lag-dependent measure carries a significantly positive coefficient among the profitability models and is determined considerably from one year to the next. The result supports the studies of Mollah and Zaman (2015), Mollah et al (2017), Moudud-Ul-Huq et al (2018a, 2020) and Moudud-Ul-Huq (2020). More importantly, from the risk aptitude and financial stability view, a 1% increase of credit risk (financial stability), IBs would cause declining (improving) profitability by 0.143%, 0.106% and 0.124% (0.152%, 0.184, 0.167), respectively.…”

Section: Resultssupporting

confidence: 86%

Impacts of Sharīʿah supervision and corporate social responsibility on banks’ risk-taking behavior and profitability

2021

IMEFM

Self Cite

Purpose This paper aims to examine the impacts of both Sharīʿah supervision and corporate social responsibility on banks’ risk-taking behavior and profitability. The analysis empirically uses dynamic and balanced panel data from 12 banks of Bangladesh for 2010–2019. Design/methodology/approach Dynamic panel generalized method of moments has been used primarily to examine the effects of Sharīʿah supervision and corporate social responsibility on risk-taking behavior and profitability. Later, the authors validate the core results using three-stage least squares and incorporates alternative risk and profitability measures in the baseline equation. Findings This study finds that Sharīʿah supervision heterogeneously derives benefits for Islamic banks and Islamic windows. Though there is no significant impact of female diversity on risk relying on board diversification, the bank can strengthen profitability. On the one hand, the annual changes in board composition reduce (increase) risk (financial and stability efficiency) but compromise profitability. Notably, socially responsible banks have been characterized as risk-averse and better stabilized (in terms of solvency and efficiency), more efficient and profitable. Originality/value Very few studies are available in the current literature which examine the impacts of Sharīʿah supervision and corporate social responsibility on either bank performance or risk-taking in the developing economy’s context.

“…During 2008, the GFC and economic downturn increased the uncertainty and negatively affected the world economy (Moudud-Ul-Huq, 2020; Moudud-Ul-Huq Zheng, Gupta, Hossain, & Biswas, 2020). Based on the above discussion, we find that credit risk is the main cause of the GFC, which in turn might lead to serious liquidity problems to the firms and hence can go for bankruptcy.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

“…The previous study uses different proxies for measuring credit risk or lending decision quality of the banks. The studies such as Moudud-Ul-Huq (2018, 2019a, 2019b, 2020), Moudud-Ul-Huq, Zheng, and Gupta (2018), Moudud-Ul-Huq, Ashraf, Gupta, and Zheng (2018), Moudud-Ul-Huq et al (2020) and Zheng and Moudud-Ul-Huq (2017) use the ratio of NPLTL as credit risk indicators. It is considered one of the most critical indicators of credit risk and loan quality of the bank.…”

Section: Variable Definitionmentioning

confidence: 99%

Impact of Financial Crisis on Credit Risk: Pre- and Post-financial Crises  in an Emerging Economy

Akter

Biswas

2020

FIIB Business Review

Self Cite

This aim of the article is to establish a model to discuss the reasons for changing the level of credit risk among the commercial banks of Bangladesh during the global financial crisis (GFC). Credit risk has been remaining as the essential and core risk in commercial banking activities. Multiple regression analysis is used to test the relationship among the level of credit risk as a dependent variable and financial crisis, other bank-level variables and macroeconomic variables. The causes of the GFC revealed not only systematic or structural imbalances but also the necessity to keep and strengthen the principles of credit risk management. We analyse the leading causes of the recent GFC. Moreover, the lessons that must be learnt from the weaknesses of credit risk management systems. Credit risk was found to respond to macroeconomic conditions, which indicate strong feedback effects from the banking system to the real economy. This article represents the analysis of the influence of the financial crisis on credit risk management in commercial banks and summarizes the challenges faced by banks for credit risk improvement. We hope that this reality creates new opportunities for managing credit risk in the future to increase this importance in the banks and the overall economy of Bangladesh.