The nexus between Basel capital requirements, risk-taking and profitability: what about emerging economies?

Mujtaba, Ghulam; Akhtar, Yasmin; Ashfaq, Saira; Jadoon, Imran Abbas; Hina, Syeda Mahlaqa

doi:10.1080/1331677x.2021.1890177

Cited by 11 publications

(18 citation statements)

References 38 publications

(72 reference statements)

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“…The result indicates that banking regulations seem to become a well-organised strategy factor in fostering stability and minimising the risk of default. Such findings support the work of Ashraf (2017), Ashraf et al (2016a, b), and Yakubu and Bunyaminu (2021), and contradict (Mujtaba et al, 2022), who stated that banks with higher capital ratios are expected to increase in risk-taking. Concerning the macroeconomic factors, the estimates of GDP growth covariates indicate that better economic performance reduced bankruptcy risks and risk-taking.…”

Section: Regression Resultssupporting

confidence: 89%

“…Regulating capital could generally grant credible marketing with excellent governance and considerable discretion. On the other hand, in focusing on moral hazards, far less skilled management could be motivated to take some risks to accommodate for reduced earnings (Mujtaba et al, 2022). According to some research, more significant banking regulations incentivise bankers to engage in risk-taking.…”

Section: Literature Review 21 Theoretical Issuesmentioning

confidence: 99%

“…It is used to mitigate the bias introduced by AJAR omitted variables in cross-section (Roodman, 2009) and when endogenous lag factors were used as the regressor. One-step GMM and two-step method of moments are the two alternatives available to the systemic GMM for doing analysis (Mujtaba et al, 2022). The study employed the two-step system dynamic panel approach since it is accurate and robust to the issues of autocorrelation, heteroscedasticity and endogeneity introduced by causality moving from instability to bank diversification.…”

Section: Empirical Model Specificationmentioning

confidence: 99%

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Impact of income diversification on bank stability: a cross-country analysis

Adem

2022

AJAR

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PurposeThe impact of diversification on bank stability and risk remains an ongoing topic of discussion with inconclusive results. Hence, this study investigated the implications of income diversification on bank stability within African markets.Design/methodology/approachThe study utilised longitudinal financial data on 45 countries from 2000 to 2017 and employed static and dynamic panel model estimation.FindingsThe results of the study suggest income diversification technique could improve financial stability throughout typical and crisis periods which validate portfolio management theory. The study also confirms the “too big to fail” hypothesis, extensive diversifying over an optimal range negatively impacts stability. Banks with a high level of liquidity, a higher operating efficiency and a larger deposit ratio become more resilient. Banking capital regulations found to be the appropriate monitoring instrument for lowering risks and maintaining stability. However, profitability was found to have a positive effect on bank risk-taking. The finding also suggests that political institutions have substantial, direct implications that are positively related to bank fragility. Macroeconomic factors such as gross domestic product (GDP) growth and inflation also influenced bank stability.Practical implicationsThis study has important implications for bankers, regulators and academicians concerned about the effect of diversification on a bank’s risk-taking or stability in developing economies.Originality/valueTo the best of the author’s knowledge, this is the first study on Africa to analyse the quadratic influence of income diversification and the effects of political institutions on the level of bank stability.

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Section: Regression Resultssupporting

confidence: 89%

Section: Literature Review 21 Theoretical Issuesmentioning

confidence: 99%

Section: Empirical Model Specificationmentioning

confidence: 99%

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Impact of income diversification on bank stability: a cross-country analysis

Adem

2022

AJAR

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“…They opined that as there are different measures for different stakeholder groups, capital requirement regulation affects different profitability measures differently. Mujtaba et al (2021) concluded that regulatory capital had positively affected the profitability of Asian banks from 2004 to 2017. Moreover, current year profitability is affected by the previous year's profit.…”

Section: Literature Reviewmentioning

confidence: 99%

“…This study uses Total Capital to Total Risk-Weighted Assets (TCTR) to measure bank capital, according to Mujtaba et al (2021). It is the percentage of the banks' capital that is at risk and is calculated by dividing the Total Risk-Weighted Assets of a bank by the total (sum of Tier 1 and Tier 2) capital.…”

Section: Variables and Their Measurementmentioning

confidence: 99%

Basel accord capital regulations and financial risk management: Empirical evidence from Pakistan’s financial institutions

Bashir¹,

Khan²,

Sajid³

et al. 2023

10.5267/j.ac

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The Pakistani banking sector has shown tremendous growth in the last two decades and witnessed strategic reforms including the implementation of Basel regulations. The objective of this study is to investigate the effect of Basel capital regulations on the various proxies of the financial performance of the Pakistani commercial banks. This study uses three different proxies to assess the effectiveness of the Basel capital regulations on the financial performance of Pakistani commercial banks from 2006 to 2018 and quantifies the effect of different Basel accords on the banking sector of Pakistan using the dynamic panel data estimation technique. In addition, the effect of the Global Financial Crisis (2008) on the financial performance of Pakistani banks has also been evaluated. The results indicate that Basel II and Basel III capital regulations have affected the banks’ profitability differently. Capital regulations of Basel II have increased the performance while capital requirements of Basel III have not affected the financial performance of Pakistani banks, pointing towards the ineffectiveness of Basel III capital regulations. Besides, there has been no change observed in the financial performance of Pakistani banks during the Global Financial Crisis (2008). Overall, the results of the Generalized Method of Moments (GMM) technique show that Basel capital regulations enhance the financial performance of the Pakistani banking sector.

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