Bank Market Risk and Efficiency of Commercial Banks in Malaysia

Abstract

Since the global financial crisis, banking supervisors have realised that bank market risk is crucial to banking stability. Guided by the Financial Sector Master Plan, Bank Negara Malaysia has implemented risk-focused and pre-emptive regulation and supervision to control the market risk exposure. This paper examines the market risk and effects of cost and profit efficiencies on market risk using all listed banks in Malaysia for the 2000-2015 period. Using the Expected Shortfall and Stochastic Frontier Analysis, this paper estimates the cost and profit efficiencies and analyses the effects on market risk. The results show that the bank market risk exposure decreases and both cost and profit efficiencies affect market risk. Bank managers and supervisors could apply the results as a basis for formulating business strategy and developing banking policy.

Examining the Determinants of Credit Risk Management and Their Relationship with the Performance of Commercial Banks in Nepal

“…In 1993, the Basel Committee on Banking Supervision (BCBS) emphasized the significance of market risk. Market risk was described by BCBS as "the risk of losses in on-and off-balance-sheet positions deriving from changes in market pricing, including interest rates, currency rates, and equities values" (Ab-Hamid et al 2017). From there, the concept of market risk broadened to "the prospective loss induced by the unexpected changes in financial instruments including equities prices, interest rates, credit spreads, foreign exchange rates, commodity prices and other financial instruments whose values are established in a public market.…”

“…Unexpected swings diminish bank profits or value, resulting in a capital loss" (Christoffersen 2011). The addition of market risk to the Basel II Framework in 2006 reinforced its significance (Ab-Hamid et al 2017). The management of bank market risk has become more important than ever since the global financial crisis of 2007-2008.…”

“…In 1993, the Basel Committee on Banking Supervision (BCBS) stressed the significance of market risk. Market risk, according to the BCBS, is "related to fluctuations in market pricing (including interest rates, currency rates, rates, and stock values)" (Ab-Hamid et al 2017). Since then, the phrase "due to fluctuations in stock prices, interest rates, credit spreads, and foreign currency" has been added to the definition of market risk.…”

Intellectual Capital, Bank Size, Bank Market Share, and Efficiency of Conventional Banks in Indonesia

“…The measurement of the variables under study is detailed below in Table 1. (Pulic, 1998;Ab-Hamid et al, 2017;Alhassan & Ohene-Asare, 2016;Delis & Papanikolaou, 2009).…”

Market Risk and Efficiencies of the Malaysian Banking Industry: The Post-merger and Acquisition

“…Research in banks merger and acquisitions in Malaysia mostly concentrated on the efficiency of banks (Ab-Hamid et al 2017). The majority of researchers use nonparametric frontier analysis such as Data Envelopment Analysis (DEA) and Malmquist productivity index (MPI) to assess the efficiency of the merged banks (Abd-Kadir et al 2010;Khalib et al 2016;Mat-Nor et al 2006;Mohd Said et al 2008;Sufian & Habibullah 2013).…”