Round 1

Reviewer 1 Report

The manuscript titled “The Effect of Economic, Financial and Political Stabilities on the Banking Sector: Cases of Six Balkan Countries” has been reviewed. Here are my minor suggestions which can improve the manuscript. Briefly, I have a good time reading this paper, but some revisions are needed before being published.

Here are my comments:

• Overall, I recommend the inclusion of an acronyms table before the introduction section. In my opinion, there is a lot of acronyms, which could make it difficult to the readers to have it present along all paper. So, a table might help.

• The abstract is too short. This should involve short policy suggestion based on the findings of the study  

• The risk dataset in Figure 1-2-3 should be expanded up to 2020 because the author used Loan/Deposit Ratio up to this data. The paper should have consistent time line for the variables 

• Tables are outside of the page. This issue should be fixed 

• Even some table have numbers both line 1 and 2. This issue must be fixed in Table 1. 

• Z-scores are available up to 2019-2020. Therefore the authors should edit Table 2 and Figure 4 as well.  

• The authors should use the referencing style of Sustainability Journal.  

• The authors might use *,  ** , and * to under line 10% 5% and 1% significance levels in the table to increase the readability of the study 

Author Response

Reviewer 1

The manuscript titled “The Effect of Economic, Financial and Political Stabilities on the Banking Sector: Cases of Six Balkan Countries” has been reviewed. Here are my minor suggestions which can improve the manuscript. Briefly, I have a good time reading this paper, but some revisions are needed before being published.

Here are my comments:

• Overall, I recommend the inclusion of an acronyms table before the introduction section. In my opinion, there is a lot of acronyms, which could make it difficult to the readers to have it present along all paper. So, a table might help.

Response to the comment : The necessary correction has been made in the article.

 

• The abstract is too short. This should involve short policy suggestion based on the findings of the study.  

Response to the comment : The summary has been expanded.

 

• The risk dataset in Figure 1-2-3 should be expanded up to 2020 because the author used Loan/Deposit Ratio up to this data. The paper should have consistent time line for the variables 

Response to the comment : we used currently available dataset

• Tables are outside of the page. This issue should be fixed 

Response to the comment: this issue is fixed

• Even some table have numbers both line 1 and 2. This issue must be fixed in Table 1. 

Response to the comment:   The necessary correction has been made in the article.

 

• Z-scores are available up to 2019-2020. Therefore the authors should edit Table 2 and Figure 4 as well.  

Response to the comment : updated

• The authors should use the referencing style of Sustainability Journal.  

Response to the comment : this issue fixed

• The authors might use *,  ** , and * to under line 10% 5% and 1% significance levels in the table to increase the readability of the study 

Response to the comment : The necessary correction has been made in the article.

 

Reviewer 2 Report

Impression

 

This paper should see the light of day and be published but it needs significant revision.

 

First, the idea of having a model that relates banking stability to economic and financial events seems an excellent one. This could provide an extra analytical arm, and indeed extend Minsk’s financial instability hypothesis. That would be a huge a powerful contribution to the field, even if this paper comes to represent one step on this path, so it feels like this paper has an important contribution to make.

 

In this context, the 1968 Altman innovation cited in the paper feels potentially important, and I wondered if the authors were going to propose creating a new type of “Z” score for banking stability in respect of its relationship with economic, political and financial events (with unsaid, but later possibility to be extended to include some co-efficient of regulatory effectiveness).

 

Reader challenges are made more difficult by this paper referencing articles that are not in the bibliography, and introducing acronyms that are not in common international use without explaining what they mean. For example, the following sentence contains an article not in the bibliography, plus two acronym’s (in bold) that are not defined.

 

The research by Erkoçak & Çam(2015) was conducted using the data of commercial banks registered in BIST and ICRG country risk components between 2003 and 2013, economic risk, financial risk, political risk and country risk.

 

After digging, I found the article and translated the acronyms; but a reader should not be required to do this. Another part of the problem may be poor attention to detail as the acronym ICRG may be defined as ICRC in this sentence which is introduced to the paper long after the first time the acronym is used.

 

Risk data from the ICRC (International Country Risk Guide), which is a 21-year time interval between 1996 and 2017, was used in the study.

 

Shouldn’t the reason for selecting this dataset be made clear? There is a literature on this issue and it is not referenced in the article.

 

The subject matter of the paper feels significant, even if the presentation needs more work, and the model more elaboration to be able to understand what is being done in this paper.

 

Here are some (non-exhaustive) detailed thoughts.

 

Abstract

 

Correct the spelling error and expand to:-

(i)                 say something brief about the data used (time span and reputation)

(ii)               highlight this paper’s contribution to the ongoing body of knowledge – is this a step towards creating a Altman type predictive model banking stability model – with Balkan data providing the first insight?

 

Introduction

 

Could this be used to (i) set out what the paper is trying to do, (ii) place this into the overall theoretic context relating to banking stability, financial institution credit rating, and macro-economic instability, including mentioning the main theories on banking (and business cycle) stability and (iii) how this paper sits with in the global and national banking regulatory frameworks?

 

It would help for the introduction can set reader expectation as to what is not going to be done in this paper. The abstract and first part of the introduction suggested that the final result was going to be a view as to (i) if overall economic, financial and political risks are material in assessing banking stability, (ii) if they are how much cross dependency there is between both the high level summarized and lower-level detailed risks there is and (iii) which risks have the most impact on banking stability.

 

Equally, perhaps it is my mis reading, but I cannot see a debated on what measure (or range of measures) is most appropriate to define and measure impact on the banking system. Some are referenced, and there are some helpful treads such as the mention of transfer risk, but it feels like there is nothing explicit, and I could not connect the threads of this dialogue through the rest of the paper. It would be helpful to have something more concrete about how banking risk will be assessed in the paper in the introduction that is then developed later on into a statement of what is being measured in the paper. It looks like you are maybe trying to use both the loan / deposit ratio and the Altman Z code for this, if so it would be good for this to be made clear throughout the paper. Also are these the right metrics when there are a number of regulated and reported measures that are consistently published to comply with the Basel Capital Accords? I wonder why there is no mention of Tier 1 Capital Ratios, Risk Weighted Assets and the Leverage Ratio or even movements in internationally recognized (S & P, Moody’s and Fitch) credit ratings and credit rating warnings, even to explain why you do not want to use them in your analysis?

 

At the end of the introduction, it would help to have a summary of the proposed approach, plus a high-level statement on the data sources and then how the rest of the paper will flow.

 

Literature Review

 

This section feels like it could benefit from improved organization. There are some gems in it, but it should take the reader by the nose and lead them to the point where they have the foundations to understand why the model you are proposing is either a new direction or an extension of existing trends, and how this fits into the overall narrative in this subject area.

 

“The Model”

 

This title felt like it was a misnomer, and that the text that followed was not a model, but rather a discussion of what had been explored.

 

Consequently, for this paper, one feels the paper could there be benefit from following the conventional structure for submissions to this journal (these are set out in the author notes), namely to relabel and rework this section under the following headings (which are taken directly from the author guidelines)?

 

Materials and Methods

 

Under this section there would be a description of the data sources, the model and the statistical processes used. Most of the text is already there, but it would be helpful to have more detail on the dataset and variables contained within the panel data  – naming and explaining each variable would be most helpful, as would a justification as  to why there is no formal agglomeration step that groups and weights for each detailed observational element into the grouping that is then tested in the paper.

 

The ICRG dataset has a number of sub elements to each high level category (for example the Political Risk table has 15 subcomponents), and in an ideal world the panel data evaluation would be include some view on these sub components (arguably the balance of individual risk significance changes over time in relation to the temporal context of that observation); from what I can see this type of evaluation is not explicit in this papers analysis. Even a methodological comment to say why this approach was not followed would be helpful as it helps set reader expectation.

 

Again, there should be some formal discussion as to what measure(s) can be used to indicate banking system impact and why the specifically selected measure was chosen.

 

Results

 

This should in addition to a short summary section summarize some of the tables and graphs already in the paper with a crisp narrative presenting them.

 

Discussion

 

This section (that should support the reported results) seems to be fairly well developed with most of it already there in the section called “The Model” although the narrative flow through this could do with some improvement. Maybe the addition of some subheadings could help the reader navigate the logical flow through this section. Also, it felt like some of the methodological issues discussed in this section would be better be handled in either the “Literature Review” or in a “Materials and Methods” section.

 

Conclusion

 

This should summarize the findings from whole paper in perhaps rather “plainer English” that then references the main results. This could also perhaps be a good place to recommend further research and perhaps suggest that the framework in this paper be simplified and formalized to provide an adjunct risk evaluation model for both regulators and credit rating agencies. Could “Z” type score for banking stability be a helpful innovation within global regulatory frameworks.

 

Overall Assessment

 

Such a lot of work, and with such potential to help move forward an important are that needs more understanding. This paper needs to see the day of light, but as the above comments seek to set out; more clarity in presentation is required.

 

Also, my own sense is that it would be very helpful to set this paper into the context of both (i) the effectiveness of the Basel Capital Accords in assuring banking system stability and (ii) how the identified relationships can be aligned / understood within the context of business cycle theory or / and the Minsky Financial Instability Hypothesis.

 

Perhaps the authors may want to consider if they would like to add some thoughts in the conclusion as to whether a “Z” type score could be developed to agglomerate economic, financial and political risks together into a contextual indicator of “banking system stress” that can be used as one early warning indicator that there is potential banking system stability on the horizon?

Author Response

 

 

Reviewer 2

This paper should see the light of day and be published but it needs significant revision.

 

First, the idea of having a model that relates banking stability to economic and financial events seems an excellent one. This could provide an extra analytical arm, and indeed extend Minsk’s financial instability hypothesis. That would be a huge a powerful contribution to the field, even if this paper comes to represent one step on this path, so it feels like this paper has an important contribution to make.

Response to the comment : Today, banks, which act as financial intermediaries, enable the economy to grow. Banks are a channel in monetary policies and monetary issues, and they are effective institutions in ensuring sustainable macroeconomic stability. In addition, banks are one of the institutions that are exposed to the most financial risk by nature. Due to the limited number of studies on country risk in the literature, the effects on the banking sector were examined theoretically with the econometric method panel data analysis and their relations were revealed using country risk components data. It can be thought that the stability achieved in banking can provide stability in the financial development of countries.It can contribute to their economic growth. It will also contribute to the literature with the idea of ​​having a model that confines banking stability with economic and financial assets.

In this context, the 1968 Altman innovation cited in the paper feels potentially important, and I wondered if the authors were going to propose creating a new type of “Z” score for banking stability in respect of its relationship with economic, political and financial events (with unsaid, but later possibility to be extended to include some co-efficient of regulatory effectiveness).

Response to the comment : This theory, put forward by Edward Altman in 1968, measures the financial distress of the company, which is the subject of the research, and reveals its closeness to bankruptcy (Altman, 1968). Altman determined the financial coefficients of the enterprises on the basis of various financial indicators and used these coefficients in the Z-score model he created. This method has played an important role in determining credit risks and characterizing the future financial conditions of businesses in the last 40 years. Added part is marked in yellow(page-6)

Reader challenges are made more difficult by this paper referencing articles that are not in the bibliography, and introducing acronyms that are not in common international use without explaining what they mean. For example, the following sentence contains an article not in the bibliography, plus two acronym’s (in bold) that are not defined.

Response to the comment : The necessary correction has been made in the article.

 

The research by Erkoçak & Çam(2015) was conducted using the data of commercial banks registered in BIST and ICRG country risk components between 2003 and 2013, economic risk, financial risk, political risk and country risk.

Response to the comment : The necessary correction has been made in the article. Added part is marked in yellow(page-8)

After digging, I found the article and translated the acronyms; but a reader should not be required to do this. Another part of the problem may be poor attention to detail as the acronym ICRG may be defined as ICRC in this sentence which is introduced to the paper long after the first time the acronym is used.

Response to the comment : The necessary correction has been made in the article. . Added part is marked in yellow(page-8)

Risk data from the ICRC (International Country Risk Guide), which is a 21-year time interval between 1996 and 2017, was used in the study.

Response to the comment : The necessary correction has been made in the article.Added part is marked in yellow(page-8)

Shouldn’t the reason for selecting this dataset be made clear? There is a literature on this issue and it is not referenced in the article.

Response to the comment : The selected Balkan countries have been paid attention to their development in the country's economies and their involvement in global trade and to adopt the modern banking system. In addition, six Balkan countries have been selected as examples in the study due to their close relations with Turkey in the socio-cultural and economic fields. Added part is marked in yellow(page-2)

The subject matter of the paper feels significant, even if the presentation needs more work, and the model more elaboration to be able to understand what is being done in this paper.

 

Here are some (non-exhaustive) detailed thoughts.

 

Abstract

 

Correct the spelling error and expand to:-

• say something brief about the data used (time span and reputation)

Response to the comment : The time interval and the data used in this research were added to the abstract part. Added part is marked in yellow(page-1)

 

(ii)               highlight this paper’s contribution to the ongoing body of knowledge – is this a step towards creating a Altman type predictive model banking stability model – with Balkan data providing the first insight?

           Response to the comment :  In this context, the 1968 Altman innovation cited in the article is potentially significant.

           It can be expanded to include some coefficients by creating a new "Z" score for banking

           stability in terms of its relation to economic, political and financial events. Added part is

           marked in yellow(page-6)

 

 

Introduction

 

Could this be used to (i) set out what the paper is trying to do, (ii) place this into the overall theoretic context relating to banking stability, financial institution credit rating, and macro-economic instability, including mentioning the main theories on banking (and business cycle) stability and (iii) how this paper sits with in the global and national banking regulatory frameworks?

Response to the comment : In this research, Z-score was used as banking data. Loan/Deposit ratio is given in the table for information purposes only. It has been seen that the economic, financial and political stability data are affected by using them cumulatively.

 

It would help for the introduction can set reader expectation as to what is not going to be done in this paper. The abstract and first part of the introduction suggested that the final result was going to be a view as to (i) if overall economic, financial and political risks are material in assessing banking stability, (ii) if they are how much cross dependency there is between both the high level summarized and lower-level detailed risks there is and (iii) which risks have the most impact on banking stability.

Response to the comment : Due to the limited number of studies on country risk in the literature, only Z-score was used as banking data for the theoretical analysis of its effects on the banking sector.

 

Equally, perhaps it is my mis reading, but I cannot see a debated on what measure (or range of measures) is most appropriate to define and measure impact on the banking system. Some are referenced, and there are some helpful treads such as the mention of transfer risk, but it feels like there is nothing explicit, and I could not connect the threads of this dialogue through the rest of the paper. It would be helpful to have something more concrete about how banking risk will be assessed in the paper in the introduction that is then developed later on into a statement of what is being measured in the paper. It looks like you are maybe trying to use both the loan / deposit ratio and the Altman Z code for this, if so it would be good for this to be made clear throughout the paper. Also are these the right metrics when there are a number of regulated and reported measures that are consistently published to comply with the Basel Capital Accords? I wonder why there is no mention of Tier 1 Capital Ratios, Risk Weighted Assets and the Leverage Ratio or even movements in internationally recognized (S & P, Moody’s and Fitch) credit ratings and credit rating warnings, even to explain why you do not want to use them in your analysis?

At the end of the introduction, it would help to have a summary of the proposed approach, plus a high-level statement on the data sources and then how the rest of the paper will flow.

 Response to the comment : In this research, Altman's Z-score was used as banking data. Affecting the stability of banks in selected countries may cause financial and economic risk to be affected. In the researches, the bankruptcy of banks is evaluated through Altman's Z-score data. Credit/deposit ratios of selected Balkan countries are included in the visual increase for information purposes.

In this research, instead of using credit ratings of credit rating agencies, Z-score data was used because I evaluated that it was more distant from political effects.

 

 

Literature Review

 

This section feels like it could benefit from improved organization. There are some gems in it, but it should take the reader by the nose and lead them to the point where they have the foundations to understand why the model you are proposing is either a new direction or an extension of existing trends, and how this fits into the overall narrative in this subject area.

Response to the comment :  The necessary correction has been made in the article.Added part is marked in yellow(page-4)

 

“The Model”

 

This title felt like it was a misnomer, and that the text that followed was not a model, but rather a discussion of what had been explored.

 

Consequently, for this paper, one feels the paper could there be benefit from following the conventional structure for submissions to this journal (these are set out in the author notes), namely to relabel and rework this section under the following headings (which are taken directly from the author guidelines)?

 Response to the comment : The necessary correction has been made in the article.Added part is marked in yellow(page-6)

 

 

Materials and Methods

 

Under this section there would be a description of the data sources, the model and the statistical processes used. Most of the text is already there, but it would be helpful to have more detail on the dataset and variables contained within the panel data  – naming and explaining each variable would be most helpful, as would a justification as  to why there is no formal agglomeration step that groups and weights for each detailed observational element into the grouping that is then tested in the paper.

Response to the comment :  The necessary correction has been made in the article.Added part is marked in yellow(page-6)

 

The ICRG dataset has a number of sub elements to each high level category (for example the Political Risk table has 15 subcomponents), and in an ideal world the panel data evaluation would be include some view on these sub components (arguably the balance of individual risk significance changes over time in relation to the temporal context of that observation); from what I can see this type of evaluation is not explicit in this papers analysis. Even a methodological comment to say why this approach was not followed would be helpful as it helps set reader expectation.

Response to the comment : ICRG data set economic, political and financial risk data are used cumulatively.

 

Again, there should be some formal discussion as to what measure(s) can be used to indicate banking system impact and why the specifically selected measure was chosen.

 

Results

 

This should in addition to a short summary section summarize some of the tables and graphs already in the paper with a crisp narrative presenting them.

Response to the comment : thanks a lot for this suggestion

 

Discussion

 

This section (that should support the reported results) seems to be fairly well developed with most of it already there in the section called “The Model” although the narrative flow through this could do with some improvement. Maybe the addition of some subheadings could help the reader navigate the logical flow through this section. Also, it felt like some of the methodological issues discussed in this section would be better be handled in either the “Literature Review” or in a “Materials and Methods” section.

Response to the comment : The necessary correction has been made in the article.Added part is marked in yellow(page-6)

 

Conclusion

 

This should summarize the findings from whole paper in perhaps rather “plainer English” that then references the main results. This could also perhaps be a good place to recommend further research and perhaps suggest that the framework in this paper be simplified and formalized to provide an adjunct risk evaluation model for both regulators and credit rating agencies. Could “Z” type score for banking stability be a helpful innovation within global regulatory frameworks.

Response to the comment :  T It is important to implement macroeconomic policies to improve the indicators of foreign exchange reserves and domestic loans, which pose a risk of fragility for stable economic growth and higher level of welfare, to increase domestic savings through structural reforms, and thus to make the economy more resistant to internal and external shocks.

."Z-score" data for banking stability, global regulatory and It is one of the important data to see stability in banking. Added part is marked in yellow(page-19)

 

Overall Assessment

 

Such a lot of work, and with such potential to help move forward an important are that needs more understanding. This paper needs to see the day of light, but as the above comments seek to set out; more clarity in presentation is required.

Also, my own sense is that it would be very helpful to set this paper into the context of both (i) the effectiveness of the Basel Capital Accords in assuring banking system stability and (ii) how the identified relationships can be aligned / understood within the context of business cycle theory or / and the Minsky Financial Instability Hypothesis.

Perhaps the authors may want to consider if they would like to add some thoughts in the conclusion as to whether a “Z” type score could be developed to agglomerate economic, financial and political risks together into a contextual indicator of “banking system stress” that can be used as one early warning indicator that there is potential banking system stability on the horizon?

Response to the comment : Economic, financial and political risks can be used as an early warning indicator of potential banking system stability on the horizon, and in this context, a Z-type score can be developed as an indicator of "banking stability in countries" .Added part is marked in yellow(page-19)

 

 

Round 2

Reviewer 2 Report

This article is significantly approved and can be published.