The effect of bank capital structure and financial indicators on CI's financial strength ratings: the case of the Middle East (original) (raw)
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Journal of Reviews on Global Economics, 2019
Motivations: This research seeks to analyze the determinants of capital structure of the banking sector in Jordan taking into consideration bank business model (Islamic versus Commercial bank). The research also sheds light on the financial crises of 2007/2008 and its impact on the financing decision in the banking sector. Novelty: Although the topic of capital structure’s determinants is well studied in non-financial firms, very few studies considered the financial firms, namely banks. Since the nature of operations and capital components for banks are totally different this research comes to fill the gap in the banking literature. Methodology and Methods: The study uses multivariate regression techniques of panel data besides the parametric and non-parametric analysis. Three measurements of capital structure are considered: leverage ratio, long term debt ratio and short-term debt ratio, the explanatory variables are included in two sets, bank specific characteristics and economic characteristics. Data and Empirical Analysis: Balanced panel data set was formed for 27 Jordanian banks during the period of 2003- 2015. Empirically, the findings suggest a variation of capital structure determinants based on the variable of measurement. However, the analysis confirms that bank’s profitability and bank’s risk are major components of the capital structure decision regardless of its measurement variable. In addition to these two variables, liquidity, growth and taxes are important variable in the short-term debt financing, and retained earnings is important to the long-term financing. Empirically proven that Jordanian banks' capital structure decision is affected by the global financial crisis 2007/2008 and by bank type. Jordanian banks might differ in size, but this doesn't affect their policies toward the capital structure. The empirical results are consistent with the pecking order theory that profitable firms prefer to use more of their internal sources of funds rather than debt financing. Policy Implications: Due to the importance of the capital structure decision for banks and non-banks firms and based on our finding, the policy makers in Jordan and may in other similar countries should pay attention to capital requirement regulations as the determinants of leverage among banks are different based on the business model whether commercial or Islamic
International Journal of Economics and Finance, 2015
This paper mainly has two objectives: the first one is to identify the similarity of capital structure between Islamic and Conventional banks; Second objective is to detect the relationship between capital structure variables and performance of Islamic and Conventional Banks in Gulf Countries (GC). This investigation has been performed on a sample of 16 GC Banks (8 Islamic Banks and 8 Conventional Banks) for the period 2005-2014. ROE (return on equity) and ROA (return of asset) have been used as performance measures. Total debt to total assets, Equity to total assets, Debt to equity ratios have been used as capital structure measures. Size of the bank has been considered as dependent variable to identify its relationship with bank performance. Data collected were analyzed by using SPSS software. The results of the research indicate a similarity of capital structure of Islamic banks and Conventional banks in Gulf Countries. ROA as performance measurement has a significant negative relationship with financial leverage and a positive relationship with equity to assets ratio. This relationship is identified at Islamic banks, Conventional banks and all the banks of the sample. Bank size has a positive relationship with ROA and ROE as performance measures in Islamic and Conventional banks.
Prediction of bank financial strength ratings: The case of Turkey
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Bank financial strength ratings have gained widespread popularity especially after the recent financial turmoil. Rating agencies were criticized because of their ratings and failure to predict the bankruptcy of the banks. Based on this observation, we investigate whether the forecast of the rating of bank's financial strength using publicly available data is consistent with those of the credit rating agency. We use the data of Turkish banks for this investigation. We take a country-specific approach because previous studies found that proxies used for environmental factors (political, economic, and financial risk of the country) did not have any explanatory power and it is hard to find international data for other important factors such as franchise value, concentration, and efficiency. We use two popular multivariate statistical techniques (multiple discriminant analysis and ordered logistic regression) to estimate a suitable model and we compare their performances with those of two mostly used data mining techniques (Support Vector Machine and Artificial Neural Network). Our results suggest that our predictions are consistent with those of Moody's financial strength rating in general.. The important factors in rating are found to be profitability (measured by return on equity), efficient use of resources, and funding the businesses and the households instead of the government that shows efficient placement of the funds.
Capital Adequacy of the Jordanian Banking Sector for the Period 2000-2013
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The impact of the capital structure on Iraqi banks' performance
The impact of the capital structure on Iraqi banks’ performance, 2020
The current paper aims to investigate the effect of the capital structure on the profitability of a panel of eighteen Iraqi listed banks from 2009 to 2018. Furthermore, the unbalanced panel data approach (fixed effect and random effect) is utilized to explore the influence of capital structure on banks’ profitability. This study’s findings point out that the banks’ performance in terms of return on assets has a significant positive association with equity to assets ratio, liabilities to assets ratio, and bank size. On the other hand, long-term debt to assets ratio, short-term debt to assets ratio, and total debt to assets ratio showed a significant negative effect on banks’ performance. This study highlights new facts for an enhanced understanding of the capital structure and its association with banks’ performance in developing economies like Iraq. This study is considered one of the earliest studies of its types by determining the Iraqi banks’ optimal structure and examining capital structure’s impact on their performance. Nevertheless, the study contributes significantly to theoretical literature, policymakers, and industry so that conventional Iraqi banks can boost their performance.
DETERMINANTS OF CAPITAL ADEQUACY RATIO: AN EMPIRICAL STUDY ON EGYPTIAN BANKS
Capital adequacy rules are safety valve for regulators and banks' clients/shareholders to reduce expected risks faced by commercial banks especially for cross border transactions as these rules are applied compulsory by all banks internationally. Applying these rules will achieve rational management and governance. This paper examines explanatory victors that influence capital adequacy ratio (CAR) in the Egyptian commercial banks. The study covers 36 banks during the period from 2004-2013. We examined the relationship between CAR as dependent variable and the following independent variables: earning assets ratio, profitability, and liquidity, Loan loss provision as measure of credit risk, net interest margin growth, size, loans assets ratio and deposits assets ratio. Furthermore, we investigate determinants of CAR before and after the 2007-2008 international financial crises. Results vary according to the period understudy. For the whole period 2003 to 2013 results show that liquidity, size and management quality are the most significant variables. Before the period 2008 results show that asset quality, size and profitability are the most significant variables. After the period 2009 results show that asset quality, size, liquidity, management quality and credit risk are the most significant variable that explain the variance of Egyptian banks' CAR.
Determinants of Capital Adequacy Ratio (CAR) in MENA Region: Islamic vs. Conventional Banks
International Journal of Accounting and Financial Reporting, 2019
Purpose: The purpose of this research is to conduct a comparative analysis of CAR determinants between Islamic and conventional banks. Design/methodology/approach: The analysis is conducted using GMM on annual data for 38 Islamic banks (IBs) and 75 conventional banks (CBs) in 10 MENA countries during 2009-2013. CAR is used as a dependent variable and is measured by the Basel framework. The independent variables are: profitability; liquidity risk; credit risk; bank size; deposits to assets; operational efficiency; portfolio risk; and two macroeconomic variables (GDP growth rate and average world governance indicators for each country). Findings: The results show that both IBs and CBs have a significant association between CAR and (bank size, operational efficiency, and GDP growth rate) and CAR is affected retroactively on the long-run. In IBs the results show a significant association between CAR 288 and deposits to assets ratio. However, CBs results show an association between CAR and (profitability, credit risk, and portfolio risk). Practical implications: The empirical evidence accentuates the difference between both banking systems and the importance to enforce the application of the Islamic Financial Services Board (IFSB) proposal on IBs based in different jurisdictions. This will enhance the IBs stability and efficiency; and achieve standardization of CAR calculation between IBs. Originality/value: Filling the gap in the Islamic finance literature by trying to examine whether factors influencing CAR are similar between both banking systems or to confirm on the view that they are completely different and should not adhere to the same regulatory bodies.