The Role of Bank Liquidity and Bank Risk in Determining Bank Capital: Empirical Analysis of Asian Banking Industry

Abstract

This study provides new insights about how bank liquidity and bank risk have influenced the capital ratio of commercial banks operating in Asia’s emerging economies after the financial crisis 2007–2008. The data were collected for 377 banks from the Bankscope database covering the period of eight years between 2010 and 2017. The linear regression panel-corrected standard errors approach is used to find consistent estimators. The results of the overall sample and medium-sized banks regression revealed a positive relationship between bank liquidity and bank capital ratio, whereas the liquidity and bank capital ratio of large commercial banks have a negative association. The impact of liquidity on bank capital ratio is positive but insignificant in the case of smaller banks. The impact of bank risk on bank capital ratio is negative in the case of smaller and medium-sized banks, whereas the association is found positive in the case of larger and overall banks data results in short run, other things remain unchanged. The findings have valued information for researchers, analysts, managers, and policymakers.

How Do Capital Ratios Affect Bank Risk-Taking: New Evidence From the United States

“…The results confirm that RWA and capital buffer ratios are positively associated, whereas the relationship is negative in the case of LLR. The findings explore for robustness checks are also in line with the previous studies like (Abbas et al, 2020;Aggarwal & Jacques, 1998;Altunbas et al, 2007;Bitar et al, 2018;Ding & Sickles, 2018;Jacques & Nigro, 1997;Jokipii & Milne, 2011;Lee & Hsieh, 2013;Rime, 2001;Shrieves & Dahl, 1992).…”

Impact of Investment, Financial and Trade Freedom on Bank’s Risk-Taking

“…Liquidity (LIQ) (Abbas, Iqbal, & Aziz, 2019;Allen, Jackowicz, Kowalewski, & Kozłowski, 2017). Size (Abbas, Iqbal, & Aziz, 2020;Lee & Hsieh, 2013). Loan growth (Abbas & Masood, 2020a;Harkati et al, 2019).…”

“…Financial Freedom Economic Freedom Index (Sufian & Habibullah, 2010) Investment Freedom Economic Freedom Index (Sufian & Habibullah, 2010) Trade Freedom Economic Freedom Index (Sufian & Habibullah, 2010) Capital Ratio Total Bank equity to total assets (Stiroh, 2004) Profitability Net Income to Total Assets (Sufian & Habibullah, 2010) Liquidity ratio Total liquid assets to total assets (Abbas et al, 2020) Loan growth Yearly change in loans (Abbas & Masood, 2020a) Market Power Bank Deposits to total industry assets (Abbas & Masood, 2020a) Income Diversification 1-(net income-operating income)/ operating income (Stiroh, 2004) Funding Diversification 1-((equity/total)2+(subordinate debt/ total)2+(deposits/total)2 +(short term fund/total)2) (Stiroh, 2004)…”

Risiko Utama Dan Pengaruhnya Pada Profitabilitas Bank

“…Ketika para peminjam telat membayar atau bahkan dalam skenario terburuk gagal membayar maka bank tetap wajib membayar bunga nasabahnya tepat waktu. Risiko operasional berbicara bagaimana bank melakukan fungsi transformasi aset dan tetap memperhatikan kewajiban-kewajibannya (Abbas et al, 2020). Kewajiban bank tidak terbatas pada nasabah saja tetapi juga semua stakeholder dalam industri perbankan.…”