Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Rahman, Mohammed Mizanur; Ashraf, Badar Nadeem; Zheng, Chao; Begum, Munni

doi:10.3390/ijfs5040032

Cited by 26 publications

(32 citation statements)

References 46 publications

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“…The regulatory capital ratio shows the ratio of regulatory capital (Tier-I capital plus Tier-II capital) to risk-weighted assets; which is also known as the capital adequacy ratio (CAR). Many recent studies use this ratio as a measure of capital (Rahman et al, 2017;. The study uses capital regulations variable as a main variable as well as an independent variable in the risk and performance equation.…”

Section: Capital Regulationsmentioning

confidence: 99%

“…The old accord mainly focused on capital regulation, but the new mechanism consists of three mutually reinforcing pillars: capital requirement, supervisory review process, and market discipline. But, the minimum capital Rahman et al (2017) 2000-2014 Bangladesh GMM Capital adequacy ratios have a negative association with bank risk. Bitar et al (2018) 1999-2013 OECD countries Quantile regressions and PCA Risk-based capital ratios fail to decrease bank risk.…”

Section: Introductionmentioning

confidence: 99%

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Do Capital Regulations and Risk-Taking Behavior Affect Bank Performance? Evidence from Bangladesh

Akter¹,

Majumder

Uddin

2018

Asian Economic and Financial Review

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This study develops and estimates a dynamic panel model to examine the simultaneous relationship between capital regulations and bank risk-taking in the Bangladeshi banking sector. Furthermore, the study investigates the impact of capital regulations and bank risk-taking on performance. The study investigates on 30 commercial banks of Bangladesh over the period 2002-2016 using two-step system GMM estimator. The study also uses two-stage least squares regression to check the robustness of the findings. The empirical evidence is found showing the significant negative association between capital regulations and risk-taking simultaneously. The study also finds evidence that there is a significant positive impact of capital regulations on bank performance. In contrast, the findings show that bank risk-taking has significant negative impacts on performance. The study expects that the results of this study will add value to the existing literature and will be significant for the future researcher and policymaker to decide in this regard. Contribution/ Originality:This study contributes to the existing literature by investigating the simultaneous relationship between capital regulations and bank risk-taking on the emerging economy like Bangladesh. The study further examines the impact of capital regulations and bank risk-taking on performance. The study empirically uses dynamic panel model with two-step system GMM estimator which provides consistent results by overcoming the issue of endogeneity, serial correlation, and heteroscedasticity.

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Section: Capital Regulationsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Do Capital Regulations and Risk-Taking Behavior Affect Bank Performance? Evidence from Bangladesh

Akter¹,

Majumder

Uddin

2018

Asian Economic and Financial Review

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“…In particular, the authors document a significantly positive impact of relationship banking on bank interest margins. Rahman et al (2017) find robust evidence that more efficient banks hold higher capital and charge lower financial intermediation costs (and hence lower bank margins). The authors also observe that on average, banks increased the cost of financial intermediation during the crisis, however, greater efficiency helped banks to not charge higher intermediation costs.…”

Section: Related Literaturementioning

confidence: 90%

“…Our paper is related to the literature on the explanation of lower interest margins. Examples include Valverde and Fernández (2007); Lepetit et al (2008); Arnold and van Ewijk (2012) and Rahman et al (2017). Valverde and Fernández (2007) argue that most literature on bank margins has primarily focused on interest margins; however, interest margins are only a part of the picture due to the increasing share of non-traditional activities in total bank incomes.…”

Section: Related Literaturementioning

confidence: 99%

Bank Interest Margin, Multiple Shadow Banking Activities, and Capital Regulation

Lin

Chen

Huang

2018

IJFS

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Abstract:In this paper, we develop a contingent claim model to evaluate a bank's equity and liabilities that integrates the premature default risk conditions with loan rate-setting behavioral mode and multiple shadow banking activities under capital regulation. The barrier options theory of corporate security valuation is applied to the contingent claims of a bank. The barrier reports that default can occur at any time before the maturity date. We focus on a type of earning-asset portfolio, consisting of balance-sheet banking activities of loans and liquid assets and shadow banking activities of wealth management products (WMPs) and entrusted loans (ELs). The optimal bank interest margin, i.e., the spread between the loan rate and the deposit rate, is derived and analyzed. The results provide an alternative explanation for the decline in bank interest margins, which better fits the narrative evidence on bank spread behavior under capital regulation in particular during a financial crisis. Raising either WMPs or ELs leads to a transfer of wealth from equity holders to the debt holders, and hence increases the deposit insurance liabilities. We also show that the multiple shadow banking activities of WMPs and ELs captured by scope equities may produce superior return performance for the bank. Tightened capital requirements may reinforce the superior return performance by a surge in shadow banking activities that makes the bank less prudent and more prone to risk-taking at a reduced margin, thereby adversely affecting banking stability. We demonstrate that financial disturbance may be created because of the potential for shadow banking activities to spill over to regular banking activities and damage the real economy.

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“…In some studies (e.g., Hassan & Jreisat, 2016;Stanek, 2015), the evaluation entails finding the link between efficiency and variables from a single category. In other studies (e.g., Belas, Kocisova, & Gavurova, 2019;Rahman, Ashraf, Zheng, & Begum, 2017), the examination involves variables from more than one category. Regarding studies on the Canadian banking industry, most focus on technical efficiency (e.g., Paradi, Min, & Yang, 2015;, and comparison with a handful of countries (e.g., Ghaeli, 2019;Xiang, Shamsuddin, & Worthington, 2015).…”

Section: Review Of Literaturementioning

confidence: 99%

Cost Efficiency Determinants: Evidence from the Canadian Banking Industry

Oredegbe¹

2019

IJBM

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This study examines the cost efficiency of the banking industry in Canada. Utilizing 12 years of data (i.e., 2006 to 2017), and a two-stage data envelopment analysis (DEA), it provides insight on the determinants of the industry’s cost efficiency. It finds that the industry is cost inefficient, and that it could reduce costs by 11.52 percent. The cost inefficiency is due to technical and allocative inefficiencies, with technical inefficiency playing a dominant role. The technical efficiency decomposition shows that pure technical efficiency improved, but the scale efficiency deteriorated. The analysis of the determinants of cost efficiency reveals that deposit conversion into loans, high capitalization, and managerial tolerance for increase in administrative expense drive cost efficiency. On the other hand, market power and diversification diminish cost efficiency. In addition, the impact of profitability and credit risk are inconsequential to cost efficiency. This study contributes to literature by providing insights unique to Canada. Managers in the industry, policy makers, and regulators can point to these findings as empirical evidence supporting measures aimed at increasing the industry’s competitiveness and resilience.

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Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Cited by 26 publications

References 46 publications

Do Capital Regulations and Risk-Taking Behavior Affect Bank Performance? Evidence from Bangladesh

Do Capital Regulations and Risk-Taking Behavior Affect Bank Performance? Evidence from Bangladesh

Bank Interest Margin, Multiple Shadow Banking Activities, and Capital Regulation

Cost Efficiency Determinants: Evidence from the Canadian Banking Industry

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