Banks and Bank Systems

Journal Information
ISSN / EISSN : 18167403 / 19917074
Current Publisher: LLC CPC Business Perspectives (10.21511)
Total articles ≅ 255
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Latest articles in this journal

Shyam Bhati, Anura De Zoysa, Wisuttorn Jitaree
Banks and Bank Systems, Volume 14, pp 78-88; doi:10.21511/bbs.14(4).2019.08

Abstract:This paper examines the long-term effect of various regulatory, bank-specific and macroeconomic factors on the determination of liquidity in Indian banks. For this purpose, the study uses a random effect panel data regression model and tests it with data on Indian banks for 21 years, covering the period from 1996 to 2016. The model considers the effect of regulatory factors, cash reserve ratio, and statutory liquidity, and incorporates four different liquidity ratios specific to the Indian banking scenario. The results of the analysis show contrasting relationships between the independent variables and the dependent variables measured by four liquidity ratios.It is interesting to note that Indian banks rely more on asset-based liquidity and less on liability-based liquidity. More specifically, the most important liquidity ratio of L1 (liquid assets to total assets ratio) showed a significant relationship with macroeconomic variables of discount rates, call rates, foreign exchange reserve, exchange rate with US dollar, consumer price index and gross domestic product. L1 also showed a significant relationship with bank-specific variables of capital to total assets and bank size. However, the regulatory factors of cash reserve ratio and profitability determined by return on equity (ROE) and non-performing assets were not found to have any effect on liquidity of Indian banks.
Samiul Parvez Ahmed, Sarwar Uddin Ahmed, Mohammad Fahad Noor, Zaima Ahmed, Uttam Karmaker
Banks and Bank Systems, Volume 14, pp 89-103; doi:10.21511/bbs.14(4).2019.09

Abstract:Researchers in developed countries argue that banks should be free to decide about their sustainability initiatives without the interference from regulators. However, researchers in developing countries tend to think differently. This study aimed to focus on this argument by examining the linkage between sustainability and financial performance (SFP) aided through regulatory policy guidelines. In doing so, a comparative study was conducted between 2012 and 2018 to compare the pre- and post-status of SFP due to implementation of policy measures. Environmental, social and governance (ESG) scores were calculated and related with financial performance (return on assets) through regression analysis. The sample data includes 30 private commercial banks (PCBs) in Bangladesh. The analysis of the data shows that during these years, the overall sustainability performance, i.e., environmental, social and governance scores of the banks increased by 33 percent. However, the transformation of this performance into better financial performance could not been established even when age and size were taken into account. The current turbulent state of the banking sector due to growing non-performing loan has been identified as the single most influential factor for this neutral result. Research findings suggest that policy guideline initiatives do have a positive impact on bank sustainability. However, exogenous factors, such as political interference, may appease, deviate and prolong its impact on financial performance. This work will enhance the understanding of academics and policy-makers about the feasibility and impact of the policy-led sustainability model in the banking sector, particularly in developing countries.
Nataliya Vnukova, Sergii Kavun, Oleh Kolodiziev, Svіtlana Achkasova, Daria Hontar
Banks and Bank Systems, Volume 14, pp 42-54; doi:10.21511/bbs.14(4).2019.05

Abstract:The study aims at developing an approach to determining the bank connectivity level. This will contribute to implementing a risk-oriented approach to counteracting money laundering, terrorist financing and the proliferation of mass destruction weapons. The article proposes to assess the degree of bank connectivity and determine the impact of these circumstances on money laundering risk using banks from foreign banking groups, whose capital share in the Ukrainian banking system amounts to more than 40 percent. Using the resulting correlation dependencies, two-dimensional binary matrices were constructed, which became the basis for creating graphs of links between banks. The institutions under study are found to be predominantly connected in terms of their sets (varieties), since the average proportion of banks with close direct links is over half, and the non-connectivity coefficient for them is about 40%. Each surveyed bank, on average, has direct links with eight other banks and inverse links with four other banks. Considering banks as tops of the graph, one can assume that there is a hidden relationship between some banks. This approach allows calculating all existing relationships between banks to assess risk. Transforming the graph from non-oriented to oriented made it possible to identify and clearly demonstrate possible directions of links between the investigated financial institutions, which should be further verified to determine the risk of money laundering, terrorist financing, etc.
Lyubov Khudoliy, Oleg Bronin
Banks and Bank Systems, Volume 14, pp 22-33; doi:10.21511/bbs.14(4).2019.03

Abstract:This article discusses the latest methodological recommendations of the Basel Committee on Banking Supervision developed in response to the effects of the global financial crisis and known as Basel III. The purpose of the study is to explore scientific approaches to justifying bank regulation as a key condition for overcoming the economic crisis and improving financial sustainability. The object of research is Basel III instruments that will be implemented in the bank regulatory policy of Ukraine. The systematic approach and systemic thinking used in the article allow one to substantiate the expediency of Ukrainian banking institutions’ governance based on the risk-oriented approach and to determine the strategy of bank supervision for the next 1-3 years. The study evaluates the results of stress testing of the largest banks in Ukraine. Thus, the results confirm that the banking sector in Ukraine is sufficiently capitalized in the absence of macroeconomic shocks, but in case of a crisis, some of these banks are not protected. Therefore, the article formulates recommendations for improving the regulation of these banks, the phased implementation of Basel III, the application of new principles, standards, tools and methods, corporate governance and risk management in Ukrainian banks.
Z Zulfikar, Wahyuni Sri
Banks and Bank Systems, Volume 14, pp 34-41; doi:10.21511/bbs.14(4).2019.04

Abstract:This study aims to investigate the role of discretionary loan loss provision of sharia financing on the Islamic commercial banks’ financial performance in Indonesia. Partial Least Squares-Structural Equation modeling (PLS-SEM) is used to examine the relationship between loan loss provisions and financial performance in 13 Islamic commercial banks for 4.5 years. The analysis of the outer model shows that the probability of default and loss given default are determinants of loan loss provision, while financial performance is determined by return on assets, non-performing financing, net operating margin, and operating costs on operating income. The results of this study indicate that loan loss provisions have a direct effect on financial performance. Further investigation shows that the return on sharia financing contributes to increasing the impact of loan loss provisions on financial performance (indirect influence). The findings contribute to the literature by showing that discretionary loan loss provision can occur in sharia financing. The study is very important in terms of awareness of management behavior related to financial performance. The study has implications for management policies related to the prerequisites of potential clients.
Borys Samorodov, Galyna Azarenkova, Olena Golovko, Kateryna Oryekhova, Maksym Babenko
Banks and Bank Systems, Volume 14, pp 10-21; doi:10.21511/bbs.14(4).2019.02

Abstract:To prevent crises in the economy, it is necessary to ensure the financial stability of banks, which is one of the main tasks facing the banking system.The purpose of this article is to develop tools for improving the efficiency of financial stability management in a bank based on strategy maps.Using UkrSibbank (Ukraine) as an example, two strategy maps are developed: a general management map and a local map – for the international payments division of the operational payments department. Structural elements of the designed strategy maps are: finances, clients, internal processes, training and development.Implementing the developed general strategy map in the bank’s practical activities involves the following measures: increasing financial stability; avoiding credit risk and optimizing the credit process; increase in profit; cost reduction; introducing new banking products; increase in the number of satisfied consumers; involvement and retention strategic clients.The developed strategy map for the international payments division of the operational payments department provides for the following measures: ensuring sufficient liquidity level of the bank’s balance sheet; introducing an effective system of analysis of origin of individuals’ and legal entities’ funds; direct correlation between employees of the international payments division and bank customers; timely informing customers regarding requirements updated.
Mohammad Naushad
Banks and Bank Systems, Volume 14, pp 1-9; doi:10.21511/bbs.14(4).2019.01

Abstract:The current study is aimed at analyzing the impact of intellectual capital on the performance of Sharia-compliant banks in Saudi Arabia for the period 2013–2018. The intellectual capital efficiency has been measured by applying a widely-used proxy to intellectual capital, i.e., Value Added Intellectual Coefficient (VAIC). A multiple linear regression method, based on panel data using the pooled Ordinary Least Squares (OLS), was exerted. Regression equations were obtained to determine the impact of VAIC and its components (Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE), and Capital Employed Efficiency (CEE)) on the financial performance of banks, designated as Return on Assets (ROA) and Return on Equity (ROE). The study has found out that VAIC has a statistically significant impact on the financial performance of Sharia-compliant banks in Saudi Arabia. But VAIC components fail to have a significant impact on ROE. However, these components significantly affect ROA. The study concludes that Sharia-compliant banks in the Kingdom of Saudi Arabia should pay particular attention to Intellectual Capital (IC) in general and Human Capital (HC), Structural Capital (SC), and Employed Capital (EC) in particular to increase Return on Assets and financial performance as a whole.
Evgeniy Lopatin
Banks and Bank Systems, Volume 14, pp 202-211; doi:10.21511/bbs.14(3).2019.17

Abstract:The paper estimates the problem of trust in the banking system, which remains significant in the context of development of Russian banking system. Data used in this article had been collected from Thomson Reuters as of July 2019. The paper reveals the major problem of banking system, which is the lack of long money coming into the financial system of Russian Federation. It comes, first, from the household sector, and secondly, from pension savings. The paper investigates most important internal and external factors, which influence both individual commercial banks and the whole banking system. The analysis of the institutional aspect of the regional banking sector development proves that multidivisional and differentiated structure of credit institutions has been set up in Russia, which, in the whole, meets the needs of customers. Also, the current stage of Russian banking system development can be characterized by serious influence of the global economic crisis. Under these conditions, the revocation of licenses from inefficiently functioning credit organizations is a positive fact that contributes to strengthening the stability of the banking system.
Kishor Meher, Henok Getaneh
Banks and Bank Systems, Volume 14, pp 187-201; doi:10.21511/bbs.14(3).2019.16

Abstract:The study aims to investigate the impact of determinants of financial distress on financial sustainability of Ethiopian commercial banks. The balanced panel data of 12 commercial banks of Ethiopia have been taken for the study from 2011 to 2017. The research deploys Ordinary Least Square (OLS) Regression Model. The indicators of financial distress are bank’s specific internals and macro-economic factors. The proxies of financial sustainability are Return on Assets, Return on Equity, Financial Stability Index and Bank Soundness. The findings reveal that the Absolute Liquidity Risk and Net Income Growth are found to be positive and significant and Solvency Risk negative and significant in relation to Return on Assets. Asset Quality is found to be positive and significant and Solvency Risk negative and significant with respect to Return on Equity. The Asset Quality and Net Income Risk are positive and significant and Solvency Risk is negative and significant with relation to the Financial Stability Index. Absolute Liquidity Risk and Liquidity Risk are positive and significant and Credit Risk negative and significant with Bank Soundness. Free Cash Flow and Net Income Growth are essential for enhancing Return on Assets and Bank Soundness, and managing equity within the prudential norms could bring forth short-term financial sustainability of commercial banks. By lowering provisioning of loan loss, Growth in Net Interest Income and managing Solvency Risk could ensure financial stability to the banks, which in turn leads to financial sustainability. The study reveals that financial sustainability of banks is insulated from the exposures of systematic risks originating from macroeconomic factors.
Sylwia Wojciechowska-Filipek
Banks and Bank Systems, Volume 14, pp 175-186; doi:10.21511/bbs.14(3).2019.15

Abstract:Recently, banks have been increasingly implementing solutions, which facilitate automation of tedious, repetitive processes, both front and back office. The aim of the article is to review the applications of automation of banking processes and to present implementation of Robotic Process Automation (RPA) in order to optimize the process of handling disclosure of information constituting a bank secret at a bank operating in Poland. Banks are obliged to disclose information constituting a bank secret to a number of authorized institutions not only free of charge, but also within a specified, limited period of time. At the same time, they must ensure an appropriate level of security for legally protected information. The process traditionally carried out by people was time-consuming and error-prone due to the human factor. It required more quantitative efficiency and improvement in task execution. For this purpose, Robotic Process Automation was implemented in the bank in the process of disclosure of information constituting a bank secret at the request of authorized authorities and institutions. After the implementation of RPA, the enquiry handling process was shortened from 7 to 3 stages, including registration of the case in the system, automatic handling of the request and sending a response. Thanks to the RPA implementation, the time needed to complete particular tasks in the process was significantly reduced, which made it possible to shorten the maximum enquiry processing time from 16 to 3 days. The automation significantly improved process profitability and efficiency. It enabled better task management and improved security by reducing errors and ensuring compliance with regulations. The implementation of the RPA tool in the process of disclosing information enabled its quantitative and qualitative optimization, as well as efficient and reliable performance of the obligations set forth in the Banking Law Act.