Institutional Development, Capital Ratios, and Bank Lending: Evidence from a Global Context (original) (raw)
Related papers
2019
This paper aims to investigate the influence of bank capitalization and institutional quality on the lending activity of commercial banks in the MENA region over the period from 2000 to 2016. By applying the fixed effect panel data estimator, we find that, commercial bank lending depends on bank-specific variables, macroeconomic variables and the institutional environment. Our results show that any increase in bank capitalization and the implementation of capital regulation (Basel II and Basel III) have negative impacts on the credit supply. We find, also, that political stability and good regulatory quality encourage foreign, domestic and private banks to improve their credit supply. However, commercial banks tend to behave cautiously when there is increasing government effectiveness and financial freedom.
Institutional Environment and Bank Capital Ratios
SSRN Electronic Journal, 2017
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Quality of Bank Capital and Bank Lending Behavior during the Global Financial Crisis
International Review of Financial Analysis 37, 168-183. doi: 10.1016/j.irfa.2014.11.008, 2015
Using a worldwide bank sample from 2000 to 2010, this article analyzes the determinants of bank lending behavior during the global financial crisis highlighting the role of bank capital. It reveals that the high quality of the bank funding strategy (tier 1 bank capital and retail deposits) and prevalent government backing were crucial to continuous bank lending during the crisis period. This effect was especially pronounced in non-OECD and BRIC countries. We also point out that, although higher use of tier 2 capital and interbank deposits could be important for increased lending during a normal period, this did not support lending activities during the financial crisis. The article concludes by suggesting that in crisis periods high-quality bank capital is a bank’s competitive strength.
Financial Market Development and Bank Capitalization Ratio
Paradigm, 2017
Financial sector liberalization in many African countries, set in a series of financial sector reforms, aimed at developing the system. Theoretically, reforms that develop the banking sector are expected to improve banks’ performance and reduce excessive bank-risk taking by enhancing bank capital ratio in addition to maintain the stability in the system. Nonetheless, literature also shows that the health of the financial system may be at risk following a liberalization process in the form of contagion effects of financial markets integration. A recent example is the global 2007/2008 global financial crisis. Against this background, this article examines the extent to which banking sector development in selected African countries affect the commercial banks’ capitalization ratio. Employing a dynamic panel regression technique for the examination while controlling for bank-specific and macroeconomic factors over the period 2000–2014, this article finds that banking sector development ...
The Determinants of Banks’ Capital Ratio in Developing Countries
In this paper, we try to study the determinants of the banks' capital ratio in an emerging country. To do so, we model the relationships between some variables of the banks and this ratio. Our aim is to explain its high level. We try also to answer to a new question. Is it affected by the same factors in the emerging countries as in the industrialized ones?
2010
The paper empirically analyzes the determinants of nonperforming loans (NPL) and the potential impact of both business and institutional environment on credit risk exposure of banks in the MENA region. Looking at a sample of 46 banks in 12 countries over the period 2002-2006, we find that, among bank specific factors, foreign participation coming from developed countries, high credit growth and loan loss provisions reduce the NPL level. However, highly capitalized banks experience high level of credit exposure. Credit quality of banks is also positively affected by the relevance of the information published by public and private bureaus. Finally, our findings highlight the importance of institutional environment in enhancing banks credit quality. Specifically, a better control of corruption, a sound regulatory quality, a better enforcement of rule of law, and a free voice and accountability play an important role in reducing NPL in the MENA countries.
The Determinants of Bank Capital Ratios in a Developing Economy
Asia-Pacific Financial Markets, 2008
This paper reports new findings on the determinants of bank capital ratios. The results are from an unbalanced panel data set spanning eight years around the period of the 1997-1998 Asian financial crisis. Test results suggest a strong positive link between regulatory capital and bank management's risk-taking behaviour. The risk-based capital standards of the regulators did not have an influence on how regulatory capital is adjusted by low-capitalized banks, perhaps due to the well-documented banking fragility during the test period. Finally, bank capital decisions seem not to be driven by bank profitability, which finding is inconsistent with developed country literature that has for long stressed the importance of banks' earnings as driving capital ratios. Although the study focuses only on one developing economy, these findings may help to identify the correlates of bank capital ratios in both developed and developing economies since this topic has received scant attention of researchers. These findings are somewhat consistent with how banks engaging in risky lending across the world could have brought on the 2007-2008 banking liquidity and capital erosion crisis.
Institutional quality and risk in the banking system
Journal of Economics, Finance and Administrative Science, 2021
Purpose This paper aims to offer an empirical study of the impact of institutional quality on the banking system risk and credit risk. Design/methodology/approach Applying cross-sectional dependent tests and stationary tests to check the property of our sample, the panel corrected standard errors model is recruited as the main estimator, while feasible generalized least squares, pool ordinary least squares (OLS), robust pool OLS and other estimators are used as a robustness check for an unbalanced panel data for 56 economies divided into three subsamples between 2002 and 2015. Findings The empirical results show several significant contributions. First, an improvement in institutional quality is an important factor to reduce the banking system risk. This effect of the institutions is less important in well-capitalized, highly profitable and in high-economic growth countries. This effect is also stronger in highly liquid banking systems. Notably, a better institutional quality helps ...
11.The Determinants of Banks’ Capital Ratio in Developing Countries
In this paper, we try to study the determinants of the banks' capital ratio in an emerging country. To do so, we model the relationships between some variables of the banks and this ratio. Our aim is to explain its high level. We try also to answer to a new question. Is it affected by the same factors in the emerging countries as in the industrialized ones?
Quality of Bank Capital and Credit Growth in the Global Financial Crisis
SSRN Journal
Using a worldwide bank sample from 2000 to 2010, this article analyzes the determinants of bank lending behavior during the global financial crisis highlighting the role of bank capital. It reveals that the high quality of the bank funding strategy (tier 1 bank capital and retail deposits) and prevalent government backing were crucial to continuous bank lending during the crisis period. This effect was especially pronounced in non-OECD and BRIC countries. We also point out that, although higher use of tier 2 capital and interbank deposits could be important for increased lending during a normal period, this did not support lending activities during the financial crisis. The article concludes by suggesting that in crisis periods high-quality bank capital is a bank's competitive strength.