Competition and Profitability: Impacts on Stability in Chinese Banking

Tan, Yong; Lau, Chi Keung Marco; Gözgör, Giray

doi:10.1080/13571516.2020.1724009

Cited by 12 publications

(6 citation statements)

References 68 publications

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“…Bank size is another corporate profile widely regarded in literature since the study of Salas and Saurina (2002) or more recently, among many others, Ben Jabra et al (2017) and Tan et al (2020).…”

Section: Literature Reviewmentioning

confidence: 99%

Forecasting the macro determinants of bank credit quality: a non-linear perspective

Fallanca

Forgione

Otranto

2020

JRF

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Purpose This study aims to propose a non-linear model to describe the effect of macroeconomic shocks on delinquency rates of three kinds of bank loans. Indeed, a wealth of literature has recognized significant evidence of the linkage between macro conditions and credit vulnerability, perceiving the importance of the high amount of bad loans for economic stagnation and financial vulnerability. Design/methodology/approach Generally, this linkage was represented by linear relationships, but the strong dependence of bank loan default on the economic cycle, subject to changes in regime, could suggest non-linear models as more appropriate. Indeed, macroeconomic variables affect the performance of bank’s portfolio loan, but such a relationship is subject to changes disturbing the stability of parameters along the time. This study is an attempt to model three different kinds of bank loan defaults and to forecast them in the case of the USA, detecting non-linear and asymmetric behaviors by the adoption of a Markov-switching (MS) approach. Findings Comparing it with the classical linear model, the authors identify evidence for the presence of regimes and asymmetries, changing in correspondence of the recession periods during the span of 1987–2017. Research limitations/implications The data are at a quarterly frequency, and more observations and more extended research periods could ameliorate the MS technique. Practical implications The good forecasting performance of this model could be applied by authorities to fine-tune their policies and deal with different types of loans and to diversify strategies during the different economic trends. In addition, bank management can refer to the performance of macroeconomic conditions to predict the performance of their bad loans. Originality/value The authors show a clear outperformance of the MS model concerning the linear one.

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Section: Literature Reviewmentioning

confidence: 99%

Forecasting the macro determinants of bank credit quality: a non-linear perspective

Fallanca

Forgione

Otranto

2020

JRF

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“…Theoretically, there are two contrasting views of how competition affects bank stability: the competition-fragility and competition-stability hypotheses. One strand of empirical literature affirms the competition-fragility hypothesis for specific countries: Zimbabwe (Abel et al ., 2018) and China (Tan et al ., 2017) and cross-country evidence for Latin American countries (Yeyati and Micco, 2007), East Asia (Phan et al ., 2019), BRICS countries (Moudud-Ul-Huq, 2020) and European countries (Bahri and Hamza, 2020). In a study of 16 developing countries, Kabir and Worthington (2017) and find that conventional banks have a more pronounced competition fragility effect compared to Islamic banks.…”

Section: Empirical Literature Reviewmentioning

confidence: 99%

Competition, risk-taking behavior and stability of commercial banks: evidence from Kenya

Wahinya

Ondiba

Wang’ombe

2023

AJEMS

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PurposeThis study analyzes the effects of competition and risk-taking behavior on the stability of commercial banks in Kenya.Design/methodology/approachAn unbalanced panel dataset of 36 licensed commercial banks in Kenya for 2001–2020 was extracted from the published financial statements. A dynamic panel data analysis model, a two-step system generalized method of moments (GMM), was employed.FindingsThe results indicate that competition reinforces bank stability, whereas banks’ risk-taking behavior has an inverse relationship with strength.Practical implicationsThe study confirms the competition-stability nexus, implying that measures may be implemented to foster competition among banks with reduced concentration. These measures may include, but are not limited to, reduced entry barriers and optimal capital requirements. Second, efforts should be made to ensure excessive risk-taking by banks. Employing an elaborate exposure monitoring system with clear warning signs is recommended.Originality/valueThis study is unique in several ways. First, it employs structural and nonstructural measures of competition and ex post standards of banks’ risk-taking behavior. Second, contrary to past studies, this study uses various firm-level measures of bank stability. Lastly, it provides essential empirical evidence from the context of a developing economy, whose institutional and macroeconomic environments differ significantly from those of a developed economy.

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“…According to Tan (2016) profitability reflects bank management especially in the Chinese banking industry, because all banks are encouraged to be listed on the stock exchange in order to get external supervision and funds, higher profitability can increase bank competitiveness. According to Tan et al (2021) banks with low levels of profitability generally have incomplete monitoring and management mechanisms, thereby increasing the volume of non-performing loans and thus leading to an increase in the level of credit risk.…”

Section: Introductionmentioning

confidence: 99%

“…Credit risk is the risk that arises because the debtor fails to fulfill its obligations to the bank, while liquidity risk is the risk that arises due to the inability of the bank to finance the increase in assets and fulfill its obligations without causing large losses. Meanwhile, according to Tan et al (2021) using the Z-Score as an indicator in measuring bank stability explains the ratio of provision for loan losses to total loans and ROA volatility. These ratios reflect different risk indicators primarily reflecting credit risk and bankruptcy risk.…”

Section: Introductionmentioning

confidence: 99%

“…In terms of the macroeconomic environment, the impact of inflation on banking risk is estimated to Vol 13, No 1 (2022): April 2022, page: 51-61 DOI: https://doi.org/10.18196/jbti.v13i1.14309 [53] be significant and negative. Inflation adversely affects the financial system and the real economy, exacerbating information asymmetry and making the price level more volatile (Tan et al, 2021). Meanwhile, a higher GDP growth rate increases bank risk.…”

Section: Introductionmentioning

confidence: 99%

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Competition and Profitability: Impact on Stability in Indonesian Banking

Krisna

Rahim

Alfarisi

2022

jbti

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Currently the banking industry has undergone major changes in recent years due to regulatory deregulation. Seeing this, in implementing it, banks must be managed more carefully, one of which is by maintaining it. Banking instability occurs because banks face too many risks. The purpose of this study is to examine how the influence of competition and profitability on banks in the Indonesian banking industry. The population used is commercial banks listed on the Indonesia Stock Exchange in 2015-2019. A series of indicators from internal and external banks are also used in this study to support the research results, which consist of bank size, concentration, inflation, and GDP. That is, banking is measured using three risks, credit risk with NPL proxy, liquidity risk with LDR proxy, and insolvency risk with Z-score proxy. Using panel data analysis, the following results were found in the 2015-2019 research period, competition had a positive and insignificant effect on credit risk, competition had a negative and insignificant effect on liquidity risk and insolvency risk. Profitability has a negative and significant effect on credit risk and insolvency risk, and profitability has a positive and insignificant effect on liquidity risk.

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Competition and Profitability: Impacts on Stability in Chinese Banking

Cited by 12 publications

References 68 publications

Forecasting the macro determinants of bank credit quality: a non-linear perspective

Forecasting the macro determinants of bank credit quality: a non-linear perspective

Competition, risk-taking behavior and stability of commercial banks: evidence from Kenya

Competition and Profitability: Impact on Stability in Indonesian Banking

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