The impact of prudential regulation on bank capital and risk-taking: The case of MENA countries

Bougatef, Khemaies; Mgadmi, Nidhal

doi:10.1016/j.srfe.2015.11.001

Cited by 48 publications

(40 citation statements)

References 13 publications

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“…These findings don't support the view that higher amount of expensive capital in overall bank capital structure would jeopardize banks' performance. In contrast, these results support the view [11,15,[28][29][30][31][32][33][34][35] that banks maintain higher capital ratios to signal future better performance. b Notes: Dependent variable is (roa1).…”

Section: The Determinants Of Banks' Profitabilitysupporting

confidence: 64%

“…Existing empirical literature reports both negative and positive [11,15,[28][29][30][31][32][33][34][35] impact of capital on bank earnings and is largely inconclusive. For example, Berger [10] find that the capital positively granger-causes the earnings of U.S. commercial banks over the period from 1983-1989.…”

Section: Bank Capital and Profitabilitymentioning

confidence: 99%

“…[35] capd CAPD is a dummy variable that takes 1 in the current year and subsequent years following the implementation of Basel II and 0 before…”

Section: Main Variablementioning

confidence: 99%

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Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

Zheng

Rahman

Begum

et al. 2017

JRFM

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Abstract:In response to the recent global financial crisis, the regulatory authorities in many countries have imposed stringent capital requirements in the form of the BASEL III Accord to ensure financial stability. On the other hand, bankers have criticized new regulation on the ground that it would enhance the cost of funds for bank borrowers and deteriorate the bank profitability. In this study, we examine the impact of capital requirements on the cost of financial intermediation and bank profitability using a panel dataset of 32 Bangladeshi banks over the period from 2000 to 2015. By employing a dynamic panel generalized method of moments (GMM) estimator, we find robust evidence that higher bank regulatory capital ratios reduce the cost of financial intermediation and increase bank profitability. The results hold when we use equity to total assets ratio as an alternative measure of bank capital. We also observe that switching from BASEL I to BASEL II has no measurable impact on the cost of financial intermediation and bank profitability in Bangladesh. In the empirical analysis, we further observe that higher bank management and cost efficiencies are associated with the lower cost of financial intermediation and higher bank profitability. These results have important implications for bank regulators, academicians, and bankers.

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Section: The Determinants Of Banks' Profitabilitysupporting

confidence: 64%

Section: Bank Capital and Profitabilitymentioning

confidence: 99%

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Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

Zheng

Rahman

Begum

et al. 2017

JRFM

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“…They estimate the effect of capital regulation on bank capital and risk behaviours using a simultaneous equation model. This inter‐relationship has been reported in many studies (see Jacques and Nigro, ; Aggarwal and Jacques, ; Pereira and Saito, ; Bougatef and Mgadmi, ). Therefore, it is reasonable to expect that the decision of adjusting a balance sheet item, such as retained earnings, depends on the adjustment of other balance sheet items, such as shareholder capital, loan, investments and vice versa.…”

Section: Research Data and Methodologysupporting

confidence: 77%

Capital regulation and bank balance sheet adjustments: a simultaneous approach

Nguyen

Gan

2019

Accounting & Finance

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This study examines the balance sheets of banks in 15 Asian countries from 2004 to 2016 to explore how they respond to stricter capital regulation. We consider the simultaneity of balance sheet adjustments. Employing a normalisation method, the study found that Asian banks increased regulatory capital, primarily through retained earnings, and expanded assets over the study period. However, the two-step system Generalised Method of Moments results do not support the positive effect of capital regulation on regulatory capital components adjustments. In addition, stricter capital regulation even induces banks to reduce lending.

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“…Bougatef and Mgadmi () investigate the effect of prudential regulations on the relationship between the capitalization level and the credit risk in a small sample of commercial banks operating in the MENA region. Their findings reveal bank capital and credit risk are not significantly associated and prudential regulations fail in reducing banks' risk‐taking incentives and in increasing capital.…”

Section: Literature Reviewmentioning

confidence: 99%

Capital buffer and credit‐risk adjustments in Islamic and conventional banks

Bougatef

Korbi²

2018

Thunderbird Intl Bus Rev

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The main purpose of this article is to empirically investigate the interactions between changes in capital buffer and changes in credit risk, using panel data of Islamic and conventional banks located in the Middle East and North Africa (MENA) region over the period 1999–2016. A negative two‐way relationship between the changes in capital buffer and the changes in credit risk is found for the two types of banks, that is, banks tend to decrease their capital buffers in response to an increase in risk exposure and limit their risky activities in response to an increase in their capital buffers. Dividing our period of study into three subperiods to assess the effect of the last financial crisis 2007–08 on the adjustment process, we point out the negative bidirectional relationship between the changes in capital buffer and the changes in credit risk of the two types of banks is present for the three subperiods except the case of conventional banks during the precrisis period. Moreover, we provide evidence that Islamic banks adjust their capital buffer in response to the changes in credit risk regardless of the existence or not of a deposit insurance scheme. In contrast, the negative two‐way relationship between the changes in capital buffer and the changes in credit risk in conventional banks is found only in countries without deposit insurance schemes.

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The impact of prudential regulation on bank capital and risk-taking: The case of MENA countries

Cited by 48 publications

References 13 publications

Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

Capital regulation and bank balance sheet adjustments: a simultaneous approach

Capital buffer and credit‐risk adjustments in Islamic and conventional banks

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