Journal of Risk and Financial Management

Research

16 pages, 2072 KiB

Open AccessArticle

Performance Evaluation of Islamic Banking Services Industry: Evidence from GCC

by Muhammad Hanif

J. Risk Financial Manag. 2024, 17(11), 523; https://doi.org/10.3390/jrfm17110523 - 19 Nov 2024

Viewed by 302

This study documents the comparative financial performance of the Islamic Banking Services Industry (IBSI) in the Gulf Cooperation Council (GCC) region. After drawing the performance evaluation framework (based on the CAMEL framework), the research conducted data analysis of the Islamic Banking Services Industry [...] Read more.

This study documents the comparative financial performance of the Islamic Banking Services Industry (IBSI) in the Gulf Cooperation Council (GCC) region. After drawing the performance evaluation framework (based on the CAMEL framework), the research conducted data analysis of the Islamic Banking Services Industry (IBSI) in the GCC region for 31 quarters (2013Q4–2021Q4). The analysis examines capital adequacy, asset quality, management performance, earnings, and liquidity management. Objectively classified data trends are reported through graphs. Additionally, the research documents internal determinants of financial performance. Findings suggest that the GCC-IBSI has shown overall progress in achieving primary objectives (commercial performance), including healthy capital adequacy, cost control, equity returns, and liquidity management. Capital adequacy, cost control, and liquidity management significantly contribute to financial performance. Managerial implications include cost control, reduction in non-performing loans, and prudent liquidity management. There exist opportunities in the GCC-IBSI for investors, given the mismatch in demand and supply of Islamic financial services. This study contributes to the literature by documenting findings on the achievements of the primary objective of IBSI in multiple GCC-IBSI markets comparatively. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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19 pages, 1799 KiB

Open AccessArticle

Financial Contagion between German and BRICS Stock Markets under Multiscale Scrutiny

by Olivier Niyitegeka and Alexis Habiyaremye

J. Risk Financial Manag. 2024, 17(9), 413; https://doi.org/10.3390/jrfm17090413 - 17 Sep 2024

Viewed by 572

Abstract

We employ wavelet analysis using the maximum overlap discrete wavelet transform (MODWT) to examine the return and volatility interconnectedness between the German equity market (a prominent representative of the Eurozone market) and the BRICS countries over the period 2005–2017. Specifically, we investigate the [...] Read more.

We employ wavelet analysis using the maximum overlap discrete wavelet transform (MODWT) to examine the return and volatility interconnectedness between the German equity market (a prominent representative of the Eurozone market) and the BRICS countries over the period 2005–2017. Specifically, we investigate the presence of the pure form of financial contagion in the stock markets of Brazil, Russia, India, China, and South Africa subsequent to the Eurozone Sovereign Debt Crisis (EZDC). Our results indicate the presence of financial contagion between the Eurozone equity market and its counterparts in South Africa and Russia, characterised by co-movement and volatility spillover effects. This contagion is particularly evident at higher frequencies, suggesting that the transmission of shocks occurs rapidly across these markets in the short term. No financial contagion is observed in the Brazilian, Chinese, and Indian stock markets during the European Sovereign Debt Crisis. The absence of financial contagion observed in these three BRICS countries during the European Sovereign Debt Crisis suggests that policymakers in these countries should prioritise addressing idiosyncratic shock channels. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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30 pages, 3017 KiB

Open AccessArticle

Application of a Robust Maximum Diversified Portfolio to a Small Economy’s Stock Market: An Application to Fiji’s South Pacific Stock Exchange

by Ronald Ravinesh Kumar, Hossein Ghanbari and Peter Josef Stauvermann

J. Risk Financial Manag. 2024, 17(9), 388; https://doi.org/10.3390/jrfm17090388 - 2 Sep 2024

Viewed by 627

Abstract

In this study, we apply a novel approach of portfolio diversification—the robust maximum diversified (RMD)—to a small and developing economy’s stock market. Using monthly returns data from August 2019 to May 2024 of 18/19 stocks listed on Fiji’s South Pacific Stock Exchange (SPX), [...] Read more.

In this study, we apply a novel approach of portfolio diversification—the robust maximum diversified (RMD)—to a small and developing economy’s stock market. Using monthly returns data from August 2019 to May 2024 of 18/19 stocks listed on Fiji’s South Pacific Stock Exchange (SPX), we construct the RMD portfolio and simulate with additional constraints. To implement the RMD portfolio, we replace the covariance matrix with a matrix comprising unexplained variations. The RMD procedure diversifies weights, and not risks, hence we need to run a pairwise regression between two assets (stocks) and extract the R-square to create a P-matrix. We compute each asset’s beta using the market-weighted price index, and the CAPM to calculate market-adjusted returns. Next, together with other benchmark portfolios (1/N, minimum variance, market portfolio, semi-variance, maximum skewness, and the most diversified portfolio), we examine the expected returns against the risk-free (RF) rate. From the simulations, in terms of expected return, we note that eight portfolios perform up to the RF rate. Specifically, for returns between 4 and 5%, we find that max. RMD with positive Sharpe and Sortino (as constraints) and the most diversified portfolio offer comparable returns, although the latter has slightly lower standard deviation and downside volatility and contains 94% of all the stocks. Portfolios with returns between 5% and the RF rate are the minimum-variance, the semi-variance, and the max. RMD with positive Sharpe; the latter coincides with the RF rate and contains the most (94%) stocks compared to the other two. An investor with a diversification objective, some risk tolerance and return preference up to the RF rate can consider the max. RMD with positive Sharpe. However, depending on the level of risk-averseness, the minimum-variance or the semi-variance portfolio can be considered, with the latter having lower downside volatility. Two portfolios offer returns above the RF rate—the market portfolio (max. Sharpe) and the maximum Sortino. Although the latter has the highest return, this portfolio is the least diversified and has the largest standard deviation and downside volatility. To achieve diversification and returns above the RF rate, the market portfolio should be considered. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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25 pages, 2863 KiB

Open AccessArticle

Trading Volume Concentration across S&P 500 Index Constituents—A Gini-Based Analysis and Concentration-Driven (Daily Rebalanced) Portfolio Performance Evaluation: Is Chasing Concentration Profitable?

by Dominik Metelski and Janusz Sobieraj

J. Risk Financial Manag. 2024, 17(8), 325; https://doi.org/10.3390/jrfm17080325 - 26 Jul 2024

Viewed by 986

Abstract

The period from January 2020 to December 2022 was marked by a confluence of major events, including the COVID-19 pandemic, the Russia–Ukraine war, the energy crisis, surging inflation, Federal Reserve policy shifts, and banking turmoil, which collectively fueled heightened market volatility, risk management [...] Read more.

The period from January 2020 to December 2022 was marked by a confluence of major events, including the COVID-19 pandemic, the Russia–Ukraine war, the energy crisis, surging inflation, Federal Reserve policy shifts, and banking turmoil, which collectively fueled heightened market volatility, risk management needs, and speculative trading opportunities, leading to volatile swings in trading volume concentration across financial markets, with periods of significant increases followed by rapid declines. This paper examines the variation in the concentration of trading volume across the full spectrum of S&P 500 companies, with a focus on explaining the reasons behind the stochastic changes in trading volume concentration. We analyze different concentration measurement methods, including the power law exponent, the Herfindahl–Hirschman Index, and the Gini-based Trading Concentration Index (TCI). The research employs a novel experimental design, comparing a concentration-driven portfolio, rebalanced daily based on the top 30 stocks by trading volume, against the S&P 500 benchmark. Our findings reveal that the Gini-based TCI fluctuated between 55.98% and 77.35% during the study period, with significant variations coinciding with major market events. The concentration-driven portfolio outperformed the S&P 500, achieving an annualized return of 10.66% compared to 5.89% for the index, with a superior Sharpe ratio of 0.325 versus 0.19. This performance suggests that following trading volume concentration can yield above-average results. However, this study also highlights the importance of understanding and managing the risks associated with concentrated portfolios. This study contributes to the literature on market dynamics and offers practical insights for investors and fund managers on optimizing portfolio strategies in response to evolving concentration patterns in financial markets. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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15 pages, 1322 KiB

Open AccessArticle

Modeling and Forecasting Historical Volatility Using Econometric and Deep Learning Approaches: Evidence from the Moroccan and Bahraini Stock Markets

by Imane Boudri and Abdelhamid El Bouhadi

J. Risk Financial Manag. 2024, 17(7), 300; https://doi.org/10.3390/jrfm17070300 - 13 Jul 2024

Viewed by 1095

Abstract

This study challenges the prevailing belief in the necessity of complex models for accurate forecasting by demonstrating the effectiveness of parsimonious econometric models, namely ARCH(1) and GARCH(1,1), over deep learning robust approaches, such as LSTM and 1D-CNN neural networks, in modeling historical volatility [...] Read more.

This study challenges the prevailing belief in the necessity of complex models for accurate forecasting by demonstrating the effectiveness of parsimonious econometric models, namely ARCH(1) and GARCH(1,1), over deep learning robust approaches, such as LSTM and 1D-CNN neural networks, in modeling historical volatility within pre-emerging stock markets, specifically the Moroccan and Bahraini stock markets. The findings suggest reevaluating the balance between model complexity and predictive accuracy. Future research directions include investigating the potential existence of threshold effects in market capitalization for optimal model performance. This research contributes to a deeper understanding of volatility dynamics and enhances forecasting models’ effectiveness in diverse market conditions. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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26 pages, 671 KiB

Open AccessArticle

Determinants of Bank Profitability—Do Institutions, Globalization, and Global Uncertainty Matter for Banks in Island Economies? The Case of Fiji

by Shasnil Avinesh Chand, Ronald Ravinesh Kumar, Peter Josef Stauvermann and Muhammad Shahbaz

J. Risk Financial Manag. 2024, 17(6), 218; https://doi.org/10.3390/jrfm17060218 - 23 May 2024

Cited by 2 | Viewed by 1401

Abstract

The objective of this study is to examine the influences of institutions, globalization, and world uncertainty on bank profitability in small developing economies. Consequently, we emphasize the significance of both bank-specific and other external factors influencing bank profitability. The empirical estimation is based [...] Read more.

The objective of this study is to examine the influences of institutions, globalization, and world uncertainty on bank profitability in small developing economies. Consequently, we emphasize the significance of both bank-specific and other external factors influencing bank profitability. The empirical estimation is based on seven banks in Fiji—a small island economy—over the period 2000–2021. Together with bank-specific and macro factors, we account for institutions, globalization, and world uncertainty in analyzing the determinants of bank profitability. The study uses the fixed-effect estimation method. From the results, we observe that bank-specific variables, like the net interest margin, non-interest income, bank size, and capital adequacy ratio, are positively associated with bank profitability. Non-performing loans and credit risk are negatively associated with bank profitability. Macro variables, such as real GDP growth and remittances, have positive effects on bank profitability. Institutional factors, such as government effectiveness and voice and accountability, are positively associated with bank profitability. Regarding globalization, we find that it supports bank profitability. Global uncertainty and the Global Financial Crisis (2007–2008) are positively associated with profitability, whereas the global pandemic (COVID-19) is negatively associated. This study underscores the need to analyze the bank performance with factors beyond those reported in financial statements to derive a comprehensive understanding and appreciation of the complex nature of banking operations. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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9 pages, 247 KiB

Open AccessArticle

Analysis of Factors Affecting the Loan Growth of Banks with a Focus on Non-Performing Loans

by Se-Hak Chun and Namnansuren Ardaaragchaa

J. Risk Financial Manag. 2024, 17(5), 203; https://doi.org/10.3390/jrfm17050203 - 14 May 2024

Cited by 2 | Viewed by 1995

Abstract

The purpose of this paper is to investigate the intertemporal relationship between the non-performing loan ratio and bank lending and to analyze factors affecting loan growth using data from Mongolian commercial banks. There has been a lack of research on Mongolian banks’ lending [...] Read more.

The purpose of this paper is to investigate the intertemporal relationship between the non-performing loan ratio and bank lending and to analyze factors affecting loan growth using data from Mongolian commercial banks. There has been a lack of research on Mongolian banks’ lending behavior due to their short history. Thus, this paper investigates the effect of the non-performing loan ratio on total loan growth using an ordinary least squares (OLS) regression model with panel data. We used bank-related variables such as the loan-to-deposit ratio, provision-to-gross loan portfolio ratio, equity-to-asset ratio, and liquidity ratio, and economic variables such as the real gross domestic product (GDP) growth rate, interest rate, and inflation rate. The results of this paper show that non-performing loans have a significant negative impact on total loan growth. The implication of this result is that non-performing loans affect banking efficiency, which, in turn, affects financial stability and the real economy. Moreover, high non-performing loans reduce banks’ profits. Also, this paper found that loss reserve and the liquidity ratio have a positive effect on total loan growth, while the effects of the loan-to-deposit ratio and the equity capital ratio were not found to be significant. Additionally, from a macro perspective, the inflation rate has a positive effect on the total loan growth rate, while the interest rate has a positive effect on total loan growth rather than a negative effect. And real gross domestic product (GDP) growth does not affect the total loan growth rate. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

16 pages, 976 KiB

Open AccessArticle

Transformation of the Ukrainian Stock Market: A Data Properties View

by Alex Plastun, Lesia Hariaha, Oleksandr Yatsenko, Olena Hasii and Liudmyla Sliusareva

J. Risk Financial Manag. 2024, 17(5), 177; https://doi.org/10.3390/jrfm17050177 - 24 Apr 2024

Viewed by 1224

Abstract

This paper investigates the evolution of the Ukrainian stock market through an analysis of various data properties, including persistence, volatility, normality, and resistance to anomalies for the case of daily returns from the PFTS stock index spanning 1995–2022. Segmented into sub-periods, it aims [...] Read more.

This paper investigates the evolution of the Ukrainian stock market through an analysis of various data properties, including persistence, volatility, normality, and resistance to anomalies for the case of daily returns from the PFTS stock index spanning 1995–2022. Segmented into sub-periods, it aims to test the hypothesis that the market’s efficiency has increased over time. To do this different statistical techniques and methods are used, including R/S analysis, ANOVA analysis, regression analysis with dummy variables, t-tests, and others. The findings present a mixed picture: while volatility and persistence demonstrate a general decreasing trend, indicating a potential shift towards a more efficient market, normality tests reveal no discernible differences between analyzed periods. Similarly, the analysis of anomalies shows no specific trends in the market’s resilience to the day-of-the-week effect. Overall, the results suggest a lack of systematic changes in data properties in the Ukrainian stock market over time, possibly due to the country’s volatile conditions, including two revolutions, economic crises, the annexation of territories, and a Russian invasion leading to the largest war in Europe since WWII. The limited impact of reforms and changes justifies the need for continued market reform and evolution post-war. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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18 pages, 869 KiB

Open AccessArticle

Stock Overvaluation, Management Myopia, and Long-Term Firm Performance

by Jialin Song, Luyu Wang, Sihong Wu and Yiyi Su

J. Risk Financial Manag. 2024, 17(4), 161; https://doi.org/10.3390/jrfm17040161 - 16 Apr 2024

Viewed by 1419

Abstract

How does stock overvaluation in secondary financial markets affect long-term firm performance when significant corporate “insiders” seek to realize self-benefit? Using a sample of Chinese listed companies from 2007 to 2018, we find that overvaluation of stock price has a negative impact on [...] Read more.

How does stock overvaluation in secondary financial markets affect long-term firm performance when significant corporate “insiders” seek to realize self-benefit? Using a sample of Chinese listed companies from 2007 to 2018, we find that overvaluation of stock price has a negative impact on long-term firm performance. Moreover, our results show that management myopia mediates the relationship between stock overevaluation and long-term performance. Our study enriches the discussion of stock overvaluation and extends the management myopia literature by considering unique aspects of the irrational behavior of firm decision makers, providing implications for governments to improve their capital market reform and development. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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26 pages, 1520 KiB

Open AccessArticle

Trade Agreements and Financial Market Integration in Latin America and the US

by Obed Fernando Izaguirre, Seungho Shin and Duygu Zirek

J. Risk Financial Manag. 2024, 17(3), 126; https://doi.org/10.3390/jrfm17030126 - 20 Mar 2024

Viewed by 1966

Abstract

The primary objective of this study is to examine the extent of financial integration between Latin American and US financial markets, particularly in light of recent efforts to foster integration through trade agreements. Spanning from 1 January 1990 to 31 December 2019, the [...] Read more.

The primary objective of this study is to examine the extent of financial integration between Latin American and US financial markets, particularly in light of recent efforts to foster integration through trade agreements. Spanning from 1 January 1990 to 31 December 2019, the sample focuses on major market indices and key sectors. Financial integration is quantified using a DCC multivariate GARCH model, incorporating a smooth transition model, structural breaks, and regression-based approaches. Results indicate increased comovement with the US for main market indices in Argentina, Chile, Colombia, Mexico, and Peru, while Brazil shows a decrease. Similar trends are observed in sectoral analyses. This study also reveals heightened correlation post-trade agreements. Structural break analysis highlights significant shifts in dynamic correlations for countries with US free trade agreements. These findings support the argument of increased financial integration, bearing significance for portfolio diversification and international policy formulation. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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14 pages, 845 KiB

Open AccessArticle

The Effects of Geopolitical Risk on Foreign Direct Investment in a Transition Economy: Evidence from Vietnam

by Loc Dong Truong, H. Swint Friday and Tan Duy Pham

J. Risk Financial Manag. 2024, 17(3), 101; https://doi.org/10.3390/jrfm17030101 - 1 Mar 2024

Cited by 3 | Viewed by 4860

Abstract

Foreign direct investment (FDI) is a key driver of economic development of both developed and developing countries. Understanding and having insights into the factors that motivate increased FDI arevery important for both academics and policy makers. A key factor that multinationals incorporate in [...] Read more.

Foreign direct investment (FDI) is a key driver of economic development of both developed and developing countries. Understanding and having insights into the factors that motivate increased FDI arevery important for both academics and policy makers. A key factor that multinationals incorporate in their decisions on FDI is geopolitical risk (GPR). Therefore, this study is devotedto investigating the short-term and long-term effects of GPR on FDI in Vietnam. Data used in this study are the yearly geopolitical risk index, FDI, and other control variables covering the period from 1986 to 2021. Using the autoregressive distributed lag (ARDL) bounds testing approach, the empirical results confirm that geopolitical risk (GPR) has a significantly negative effect on FDI in Vietnam in the longterm. Specifically, in the longterm, 1 percent increase in the GPR index is associated with 5.7983 percent decrease in Vietnam’s FDI. In addition, the results derived from the ARDL model indicate that in the shortterm, GPR has a significantly positive effect on the FDI for the one-year lag, meaning that an increase in the GPR index leads to an increase in FDI. Moreover, the results derived from the error correction model (ECM) indicate that 42.89% of the disequilibria from the previous year are converged and corrected back to the long-run equilibrium in the current year. Based on the findings, some policy implications are drawn for policymakers to mitigate the negative effects of GPR on FDI. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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16 pages, 885 KiB

Open AccessArticle

How Consideration of Future Consequences, Prior Gain or Loss, Personal Risk Profile, and Justification Affect Risk–Payoff Preferences

by W. Eric Lee

J. Risk Financial Manag. 2024, 17(2), 83; https://doi.org/10.3390/jrfm17020083 - 18 Feb 2024

Cited by 1 | Viewed by 1590

Abstract

This study examines (1) how risk–payoff preference can be affected by differences in consideration of future consequences (CFC), prior gain/loss, and personal risk profile, and (2) whether one’s risk–payoff preference may vary with justification prompts. Using an experimental design with 366 undergraduate business [...] Read more.

This study examines (1) how risk–payoff preference can be affected by differences in consideration of future consequences (CFC), prior gain/loss, and personal risk profile, and (2) whether one’s risk–payoff preference may vary with justification prompts. Using an experimental design with 366 undergraduate business students, participants are tasked to make risk–payoff choices in two scenarios, with the combined risk–payoff outcomes serving as the dependent variable. In addition, participants are assessed on their personal risk profiles and also complete the 14-item CFC scale to gauge the propensity to take into account future consequences of their behaviors. Findings show that one who scores low (high) in CFC will prefer lower (higher) risk and payoff. Further, for an individual who scores high in CFC and has a prior gain (loss), he/she will be more inclined to prefer lower (higher) risk and payoff, though this effect is moderated by one’s risk profile. Finally, justification prompts help to reduce one’s propensity toward high risk–payoff, irrespective of prior gain/loss and risk profile considerations. With regard to consumers’ financial choices, particularly in a volatile economic environment, the findings here indicate that prompting for strategic justifications before making decisions can help lower one’s overall propensity toward high risk–payoff choices. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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17 pages, 1919 KiB

Open AccessArticle

Impact of Financial Factors on the Economic Cycle Dynamics in Selected European Countries

by Bogdan Andrei Dumitrescu and Robert-Adrian Grecu

J. Risk Financial Manag. 2023, 16(12), 492; https://doi.org/10.3390/jrfm16120492 - 21 Nov 2023

Cited by 1 | Viewed by 1940

Abstract

The aim of this paper was to assess the impact generated by the financial market shocks on the economic cycle in European countries. In addition to the studies from the literature, which focus more on the developed economies, this paper also considered the [...] Read more.

The aim of this paper was to assess the impact generated by the financial market shocks on the economic cycle in European countries. In addition to the studies from the literature, which focus more on the developed economies, this paper also considered the situation at the level of a group of emerging economies to highlight the potential differences. In this sense, it was analyzed how the shocks at the level of the banking sector, those at the level of the capital market, and those at the level of the real estate market influence the dynamics of the economic cycle. Both econometric models for the individual analyses of each state, such as the Bayesian vector autoregression model, and models at the level of groups of states, such as panel regressions, were used for the period 2007–2022. The results showed a strong connection between the dynamics of the financial system and that of the real economy. In addition, the impact of financial factors on the economic cycle tends to be much stronger and more significant in the case of developing countries, compared to developed ones. In this regard, it was recommended that fiscal and monetary policies should be coordinated to generate the expected effect on the economy. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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19 pages, 539 KiB

Open AccessArticle

Environmental Performance and a Nation’s Growth: Does the Economic Status and Style of Governance of a Country Matter?

by Shailesh Rastogi, Jagjeevan Kanoujiya, Pracheta Tejasmayee, Souvik Banerjee, Neha Parashar and Asmita Dani

J. Risk Financial Manag. 2023, 16(10), 460; https://doi.org/10.3390/jrfm16100460 - 22 Oct 2023

Cited by 1 | Viewed by 1855

Abstract

The literature abounds with studies on the impact of the growth of nations on the environment. However, studies on the financial materiality of environmental concerns are found less often. This study aims to determine the impact of environmental concerns on a nation’s GDP [...] Read more.

The literature abounds with studies on the impact of the growth of nations on the environment. However, studies on the financial materiality of environmental concerns are found less often. This study aims to determine the impact of environmental concerns on a nation’s GDP per capita (GDPC). In addition, the influence of developed nations and democracy is also explored. The data for 106 countries and ten years (2011–2020) are procured from World Bank’s official website. The countries with incomplete data for a balanced panel are not included. Panel data econometrics (quantile regression) is applied to analyze the data. Environmental concerns are measured with the help of environmental efficiency (EE) using data envelopment analysis (DEA). It is found that environmental efficiency (EE) negatively impacts the GDPC for low levels of GDPC. However, no association of EE with GDPC is witnessed in the case of high GDPC levels. In addition, developed nations positively moderate the EE’s impact on the GDPC when the GDPC levels are high. Moreover, democratic nations negatively moderate the EE’s impact on the GDPC when low GDPC levels exist. The main implication of the current study is that developed high GDPC countries could bear a significant chunk of the cost of EE. This way, the adverse impact of an increase in EE on the GDPC (by low GDPC counties) could be dodged, and by the efforts of developed high GDPC countries, EE could be increased significantly without adversely impacting their GDPC. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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35 pages, 1929 KiB

Open AccessArticle

Determinants of Non-Performing Loans in a Small Island Economy of Fiji: Accounting for COVID-19, Bank-Type, and Globalisation

by Shasnil Avinesh Chand, Ronald Ravinesh Kumar and Peter Josef Stauvermann

J. Risk Financial Manag. 2023, 16(10), 436; https://doi.org/10.3390/jrfm16100436 - 7 Oct 2023

Cited by 1 | Viewed by 2435

Abstract

An increase in non-performing loans and bad debts in the banking sector can make banks vulnerable to a loss of confidence among customers and other banks and a banking collapse. The recent pandemic (COVID-19) and the evolving globalisation can affect bank operations, although [...] Read more.

An increase in non-performing loans and bad debts in the banking sector can make banks vulnerable to a loss of confidence among customers and other banks and a banking collapse. The recent pandemic (COVID-19) and the evolving globalisation can affect bank operations, although the effects may depend on the type of banks and other bank-specific factors. In this paper, we revisit the topic on the determinants of non-performing loans of banks in a small island economy of Fiji over the period 2000 to 2022. We apply a fixed-effect method and consider seven banks (five commercial banks and two non-bank financial institutions). In our estimations, we examine the effect of bank-specific factors and control for the social and economic globalisation, the GFC, the COVID-19 pandemic, and bank-type effects, as well as the effect of the interaction between the bank type and the pandemic, as key contributions of the study. Overall, our results are consistent in terms of the effects noted from the bank-specific factors. From the extended model estimations, we note that COVID-19 had a more adverse effect on loan losses than the GFC, and the interaction between the bank type and COVID-19 indicates that non-banks were highly vulnerable to loan losses, whereas commercial banks exhibited greater preparedness. Economic globalisation reduces bank losses, whereas social globalisation exacerbates NPLs. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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