Capital Adequacy, Deposit Insurance, and the Effect of Their Interaction on Bank Risk

Jumreornvong, Seksak; Chakreyavanich, Chanakarn; Treepongkaruna, Sirimon; Jiraporn, Pornsit

doi:10.3390/jrfm11040079

Cited by 10 publications

(11 citation statements)

References 41 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Our results are consistent with Ghosh (2015). Further, GDP significantly and positively affects the solvency risk of banks which is consistent with the study of Jumreornvong et al (2018). Moreover, inflation has a significant and inverse impact on solvency risk of banks measured as z -score.…”

Section: Resultssupporting

confidence: 91%

Diversification, corporate governance, regulation and bank risk-taking

Hunjra

Hanif

Mehmood

et al. 2020

JFRA

View full text Add to dashboard Cite

Purpose The purpose of this paper is to investigate the impact of diversification, corporate governance and capital regulations on bank risk-taking in Asian emerging economies. Design/methodology/approach The authors applied the generalized method of moments to analyze a sample of 116 listed banks of ten Asian emerging economies for the years 2010–2018. Findings The authors found that diversification, board size, CEO duality and board independence, block holders and capital regulations significantly affect bank risk-taking. In particular, nontraditional income sources such as noninterest income and adoption of diversification strategies minimize bank risk-taking. Practical implications It is expected that the outcomes of this study can be used by banks in Asian emerging economies that seek to reduce risk-taking by managing the diversification of their income streams and managing the impacts of capital regulation and implementing sound corporate governance features in monitoring their operations. This study suggests practical risk minimizing strategies for banks. First is the sourcing of nontraditional income and adoption of diversification strategies. Second, maintaining nonexecutive directors on the board would enhance monitoring of business activities. Third, maintaining deposit insurance would reduce bank’s risk. Government provides insurance to depositors to motivate them to deposit their funds into the banks. This, in return, facilitates banks to overcome risk. However, banks need to be cautious of any increase in capital ratio, as channeling funds into risky investments would increase risk. Originality/value This study is the first to investigate the impacts of corporate governance, diversification and regulation on bank’s risk-taking in a cross-country setting of ten Asian emerging economies.

show abstract

Section: Resultssupporting

confidence: 91%

Diversification, corporate governance, regulation and bank risk-taking

Hunjra

Hanif

Mehmood

et al. 2020

JFRA

View full text Add to dashboard Cite

show abstract

“…A foreign and local regulator entails the Capital adequacy, asset quality, management efficiency, earnings and liquidity (CAMEL) ratings to evaluate how sound are financial institutions by CBK setting a ceiling of 4 percent above its Central Bank Rate (CBR) of 10 percent on credit facilities with the Cash Reserves Ratio (CRR) of 5.25 percent Njoroge, Bank Supervision Annual Report (2016). As indicated by Jumreornvong et al (2018), capital adequacy has an impact on stakeholder confidence towards a firm and it is the main parameter of measuring the financial performance of commercial banks. Demerjian, Owens and Sokolowski (2018) posit that Capital adequacy is the amount of capital a bank or other financial institution has to have as required by its financial regulator.…”

Section: 1bank Regulationmentioning

confidence: 99%

“…This theory is presumed to be applicable in all deposit taking financial institutions whether insured or not thus regulation is required to monitor the activities and ensure adherence of statutory guidelines by financial institutions (Hanson, Kashyap, & Stein, 2011). Capital adequacy has an impact on stakeholder confidence towards a firm and it is the main parameter of measuring the financial performance of commercial banks According to (Jumreornvong, Chakreyavanich, Treepongkaruna and Jiraporn, 2018). Capital adequacy is the amount of capital a bank or other financial institution has to have as required by its financial regulator (Demerjian, Owens & Sokolowski, 2018).…”

Section: Introductionmentioning

confidence: 99%

Bank Regulation and Level of Non performing Loans in Commercial Banks in Nakuru County Kenya

Muhanji¹,

Theuri²

2020

IJCFA

View full text Add to dashboard Cite

The study sought to determine the effect of bank regulation and level of nonperforming loans in commercial banks in Nakuru County Kenya. The specific objectives of the study were to explore the effect of capital adequacy on the level of nonperforming loans in commercial banks in Nakuru County Kenya, to find out the effect of asset quality on the level of nonperforming loans in commercial banks in Nakuru County Kenya, to evaluate the effect of liquidity management on the level of nonperforming loans in commercial banks in Nakuru County Kenya, to examine the effect of management efficiency on the level of nonperforming loans in commercial banks in Nakuru County Kenya and to determine the moderating effect of macroeconomic factors on the relationship between bank regulation and level of nonperforming loans. The literature review focused on portfolio theory of investment, capital asset pricing theory and the capital buffer theory of capital adequacy. The primary data was collected using structured questionnaires and secondary data was collected from the banking survey 2017 and central bank of Kenya annual supervisory reports. The study employed multiple linear regression analysis and the finding revealed that there exist a negative and statistically insignificant relationship between capital adequacy and non-performing loans. It was also observed that there exist a negative and statistically insignificant relationship between liquidity management and non-performing loans. On the other hand, there exist a positive and statistically significant relationship between asset quality and non-performing loans. Similarly, there exist a positive and statistically insignificant relationship between management efficiency and non-performing loans. Finally, the findings indicated that macroeconomic factors have moderating effect on the relationship between bank regulations and non-performing loans in commercial banks in Nakuru County. It was concluded that asset quality positively influences non-performing loans while management efficiency influence positively the non-performing loans. Similarly, liquidity management exerts a negative influence on non-performing loans. Finally, capital adequacy influence negatively on non-performing loans. The study recommends that Central Bank of Kenya should regularly access lending behavior to ensure compliance with banking regulations to avoid increasing incidences of non-performing loans. In addition, Central Bank of Kenya should closely monitor banks with deteriorating asset quality. Further, Central Bank of Kenya should strictly monitor the economic sector and ensure that banks provide adequate provisions for loans to mitigate risks of default. Furthermore, banks should maintain a good balance on deposits and lending out loans and adhere to regulators decisions about monetary policies. Finally, banks should increase the operational efficiency of operation weakness and improve corporate governance on the sanction of loans and Central Bank of Kenya should focus on managerial performance in order to detect banks with potential increases in non-performing loans.

show abstract

“…To safeguard depositors, regulations concerning bank capital and market discipline are important tools. Capital regulation is the value of capital that banks must keep to fulfill the requirements of regulations (Jumreornvong et al 2018). In 1988, the Basel I accord presented formal capital requirements as bank regulations.…”

Section: Introductionmentioning

confidence: 99%

Impact of Capital Regulation and Market Discipline on Capital Ratio Selection: A Cross Country Study

Hunjra

Zureigat

Mehmood

2020

IJFS

View full text Add to dashboard Cite

We aim to analyze the impact of capital regulation and market discipline on capital to risk-weighted assets ratio. We used the panel data of Asian developing-countries banks for the period from 2009 to 2018. We collected data from the financial statements of 73 banks of Pakistan, Jordan, Indonesia, the Philippines, Saudi Arabia, and Thailand. We used the generalized method of moment (GMM) to analyze the results. We find that capital regulation and market disciplines significantly influence the capital ratio in Asian developing countries.

show abstract

Capital Adequacy, Deposit Insurance, and the Effect of Their Interaction on Bank Risk

Cited by 10 publications

References 41 publications

Diversification, corporate governance, regulation and bank risk-taking

Diversification, corporate governance, regulation and bank risk-taking

Bank Regulation and Level of Non performing Loans in Commercial Banks in Nakuru County Kenya

Impact of Capital Regulation and Market Discipline on Capital Ratio Selection: A Cross Country Study

Contact Info

Product

Resources

About