The inter-relationships among liquidity creation, bank capital and credit risk: evidence from emerging Asia–Pacific economies

Le, Tu; Pham, Xuan T.T.

doi:10.1108/mf-04-2020-0189

Cited by 21 publications

(17 citation statements)

References 64 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Following Le and Pham (2021), Le (2020a) and among others, the pairwise Granger causality tests are performed to illustrate the possible two-way relationship between our main dependent variables ( RISK and MKTDIS ). The following pairwise Granger causality model is formed: …”

Section: Methodsmentioning

confidence: 99%

The interrelationships between bank risk and market discipline in Southeast Asia

Nguyen

Le²

2022

SEF

View full text Add to dashboard Cite

Purpose The purpose of this study is to examine whether a bidirectional relationship between bank risk and market discipline may exist in Southeast Asia. Design/methodology/approach A simultaneous equations model with a three-stage least squares estimator is used to examine the interrelationships between bank risk and market discipline using a sample of 79 listed banks in five countries in Southeast Asia (ASEAN-5) from 2006 to 2019. Findings The findings show a two-way relationship between bank risk and market discipline. In particular, market discipline has a negative impact on bank risk, while there is a positive relationship between bank risk and market discipline. A bidirectional relationship between them still holds when using an alternative measure of bank risk in subsamples, controlling for the global financial crisis and governance indicators. Practical implications The findings indicate that market discipline can reduce bank risk. Meanwhile, a positive impact of bank risk on market discipline reemphasizes that market discipline is a powerful tool to ensure banks do not have excessive risk-taking. Nonetheless, the findings suggest that further implementation of market discipline as the third pillar of the Basel framework is necessary for the banking systems in ASEAN-5. Originality/value To the best of the authors’ knowledge, this study is the first attempt to investigate the interrelationship between bank risk and market discipline in Southeast Asia.

show abstract

Section: Methodsmentioning

confidence: 99%

The interrelationships between bank risk and market discipline in Southeast Asia

Nguyen

Le²

2022

SEF

View full text Add to dashboard Cite

show abstract

“…Thus, the profitable ability is crucial in associating the market power and liquidity creation of banks. Previous studies also demonstrated a variation in the liquidity-profitability between large and small banks, as well as high-capitalized and low-capitalized banks (Berger and Bouwman, 2009;Tran et al, 2016;Le and Pham, 2021). For this study, we outline the second hypothesis, to test the role of profitability in the relationship between market power and liquidity creation, as follows:…”

Section: Hypothesis Developmentmentioning

confidence: 98%

The influence of market power on liquidity creation of commercial banks in Vietnam

Nguyen

Phan

Wong

et al. 2022

JABES

View full text Add to dashboard Cite

PurposeThis research examines the relationship between market power and liquidity creation in the specific context of bank profitability in the Vietnamese banking sector.Design/methodology/approachThe study applies the methodology proposed by Berger and Bouwman (2009) to demonstrate the creation of bank liquidity through a three-step procedure for investigating the relationship between market power and liquidity creation. The three steps include non-fat liquidity (NFLC), fat liquidity (FLC) and system generalized method of moments estimation for panel data.FindingsThis study finds that liquidity creation increases when a bank has high market power. Further, highly profitable banks positively impact the market power of banks with regard to liquidity creation, relative to less profitable banks. Moreover, bank size, capital, economic growth and interest rate negatively influence bank liquidity creation, while credit risk positively relates to bank liquidity creation.Research limitations/implicationsMeasurements used in this study are based on the works of Berger and Bouwman (2009). There are specific variations, relative to Basel III. In addition, other variables significantly impact bank liquidity creation that have not been considered in the models, and a quadratic model should have been considered to measure market power and bank liquidity creation.Practical implicationsThis study suggests that managers should control the liquidity of their banks by supervising vulnerable characteristics that have been mentioned herein and emphasizing improvements in profitability. Further, the government may consider encouraging banks to generate more liquidity by modifying regulations concerned with market power or reinforcing policies about improving the transparent business environment.Originality/valueThis study characterizes an attempt to examine the influence of market power on the liquidity creation of banks in Vietnam, which represents one of the most dynamic systems in Asia, with several varied participating banks. The current study also examines the same within the specific context of the modifying impact of the profitability of banks.

show abstract

“…Moreover, the coefficients of INF are negative and significant, suggesting that inflation rate impacts bank stability negatively. A higher inflation rate would impact borrowers' budgets, which, in turn, limits their liquidity and their capability to service debts (Le and Pham, 2021). This, therefore, may hamper bank stability.…”

Section: The Results Of Our Baseline Modelmentioning

confidence: 99%

Bank stability, credit information sharing and a shift toward households' lending: international evidence

Le¹,

Nguyen²

2021

IJMF

Self Cite

View full text Add to dashboard Cite

PurposeThe study aims to investigate the relationship between a shift in lending activities toward households, credit information sharing and bank stability.Design/methodology/approachA system generalized method of moments (GMMs) as proposed by Arellano and Bover (1995) is employed to examine the relationship using a sample of 80 countries from 2005 to 2014.FindingsThe findings demonstrate that, in general, a shift in lending strategy toward the household sector may increase bank instability while credit information sharing has a positive impact on bank stability. When credit information sharing is promoted widely, this shift may become beneficial for the banking system. The results are robust when using different measures of credit information sharing, including the depth of index and the coverage of credit information sharing mechanisms.Practical implicationsThe results demonstrate that a shift in lending activities toward households should be considered a key variable in conducting macro-prudential policies. When a shift toward household credit relative to firm credit is evolved, the findings suggest that the authorities around the world should enact laws that magnify the scope and coverage of credit information shared and thus promoting the effectiveness of information sharing.Originality/valueThe current study is the first attempt that examines the impacts of a shift in lending activities toward households and credit information sharing on bank stability.

show abstract

The inter-relationships among liquidity creation, bank capital and credit risk: evidence from emerging Asia–Pacific economies

Cited by 21 publications

References 64 publications

The interrelationships between bank risk and market discipline in Southeast Asia

The interrelationships between bank risk and market discipline in Southeast Asia

The influence of market power on liquidity creation of commercial banks in Vietnam

Bank stability, credit information sharing and a shift toward households' lending: international evidence

Contact Info

Product

Resources

About