Effects of exchange rate depreciation on commercial bank failures in Indonesia

Sahminan, Sahminan

doi:10.1016/j.jfs.2007.04.002

Cited by 13 publications

(8 citation statements)

References 10 publications

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“…LIQUIDITY is the ratio of liquid assets to total assets. This finding is somehow consistent to Sahminan (2007), where there is a positive relationship between exchange rate depreciation and insolvency risk for banks with higher share of foreign liabilities. To the extent that only idiosyncratic risk plays a significant role in capturing bank instability in Asia (Agusman et al, 2008), our findings are also consistent with Agusman et al (2008).…”

Section: Resultssupporting

confidence: 87%

“…As the wave of financial globalization in Asian banks emerges over the last decades, foreign participation in banking can also come from foreign debts. Sahminan (2007) works on the Indonesian banking industry and shows that banks with higher ratio of foreign currency assets to foreign liabilities are less exposed to exchange rate depreciation which in turn reduces banks» insolvency risk. Our paper is close to Sahminan (2007) who examines the impact of exchange rate depreciation on bank stability, but we focus on the role of foreign liabilities in banking regardless of the exchange rate depreciation aspects.…”

Section: Introductionmentioning

confidence: 99%

“…First, we work on a cross-country setting and focus on the post-1997 Asian crisis period, while Sahminan (2007) focuses on the Indonesian banking industry in the pre-1997 Asian crisis period. Second, it is admitted that banks» activities are now increasingly linked to financial market and thus, contemporary banking crises are due to risks related to financial market activities.…”

Section: Introductionmentioning

confidence: 99%

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Bank Capital Inflows, Institutional Development and Risk: Evidence From Publicly - Traded Banks in Asia

Soedarmono¹

2012

BEMP

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This paper examines the relationship between bank capital inflows and financial stability. Using a sample of publicly-traded commercial banks in Asia over the 2002-2008 period, our empirical results show that higher banking inflows measured by the share of foreign liabilities in banking reduces systematic risk, but increases bank-specific risk and total risk. A deeper investigation further suggests that an increase in total risk and bank-specific risk is driven by strong institutional development. Specifically, higher foreign liabilities in banking exacerbate bank-specific risk and total risk in countries with greater economic freedom. Hence, the reinforcement of prudential regulations is necessary to overcome bank-specific risk and total risk, particularly when the countries move to a more liberal economic environment.JEL Classification : G21, G28, G38Keywords : Banking Globalization, Economic Freedom, Capital Market Measures of Risk

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Section: Resultssupporting

confidence: 87%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Bank Capital Inflows, Institutional Development and Risk: Evidence From Publicly - Traded Banks in Asia

Soedarmono¹

2012

BEMP

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“…Among other negative consequences, this huge devaluation also hurt the banking sector. Sahminan (2004) and Sahminan (2008), inter alia, discuss how and in which ways the devaluation of a national currency leads to failure of banks regardless of their sizes and profit margins. In fact, the number of banks was reduced from 45 in 2015 to 30 in 2017.…”

Section: Characteristics Of the Macroeconomy And Banking Sector In Azmentioning

confidence: 99%

Bank-Specific and Macroeconomic Determinants of Bank Profitability: Evidence from an Oil-Dependent Economy

Hasanov

Bayramli²,

Al-Musehel

2018

IJFS

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This study investigated bank-specific and macroeconomic determinants of bank profitability in Azerbaijan, an oil-dependent economy in transition. A huge drop in oil prices, a significant devaluation of the national currency, and the financial distress were the main motivations of the study. We applied Panel Generalized Method of Moments to the data in the framework of dynamic model of the bank profitability. It was found that bank size, capital, and loans, as well as economic cycle, inflation expectation, and oil prices were positively related to the profitability, whereas deposits, liquidity risk, and exchange rate devaluation were negatively associated with it. We further found that the bank profitability demonstrated moderate persistence and ignoring the country-specific features could lead to bias and poor performance in estimations. The conclusions of this research would aid in setting banking policies towards increasing profitability. This may be supplemented by ensuring strong research departments within the banks tasked with analyzing and forecasting the main macroeconomic indicators. The novel features of the study include utilizing recent economic trends, accounting for country-specific features, and for the first time, examining the effects of the economic cycle on the bank profitability in Azerbaijan. In addition, the study featured proper addressing time series properties of the panel data, and performances of robustness checks for consistency of results.

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“…Baldwin and Krugman (1989) show a theoretical base for their argument that large exchange rate shocks such as the 1980s dollar cycle may have persistent effects on trading flows and the equilibrium exchange rate itself. Devereux and Engle (2002) state that the high volatility of real and nominal exchange rates may be due to the fact that local currency pricing eliminates the pass-through from changes in exchange rate to consumer price, while Dominguez and Tesar (2006) document the effect of exchange rate volatility on firm values (see also, Sahminan, 2007;Almeida et al, 1998). The sensitivity of exchange rate regime of a country is of highly considerable fact to control the fluctuating consuming price of a basket of goods sold both in terms of domestic and export trading.…”

Section: Introductionmentioning

confidence: 99%

Assessing the Exchange Rate Volatility as an External Shock to Chinese Economy

Azimi¹

2016

IJEF

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Theoretically, the rate of exchange is one of the major drivers of inflation that influences the wholesale price index (WPI) in countries where significant emphasis is put over import and export like China. In this paper, the exchange rate's clustering volatility and its impulsiveness as an external shock to WPI is investigated on a set of time series data which represents 4,067 daily observation of Chinese Economy from August 12, 2004-September 30, 2015. The ordinary least square and weighted regression analysis reveal significant p-values of 0.000 for exchange rate that explain the WPI throughout the stated period. The autoregressive conditional heteroskedasticity and generalized autoregressive conditional heteroskedasticity model exhibit significant probability value of 0.000 and 0.044 respectively for WPI and the exchange rate. It is found that the previous days' volatility of WPI influences the future volatility of WPI as an internal shock in addition to the previous days' impulsiveness of the exchange rate which influences the future volatility of the WPI as an external shock. The testing models are thoroughly applied and their stability and validity are evidenced thereto.

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Effects of exchange rate depreciation on commercial bank failures in Indonesia

Cited by 13 publications

References 10 publications

Bank Capital Inflows, Institutional Development and Risk: Evidence From Publicly - Traded Banks in Asia

Bank Capital Inflows, Institutional Development and Risk: Evidence From Publicly - Traded Banks in Asia

Bank-Specific and Macroeconomic Determinants of Bank Profitability: Evidence from an Oil-Dependent Economy

Assessing the Exchange Rate Volatility as an External Shock to Chinese Economy

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