The financial crisis had an adverse effect on the dy- namics of mortgage lending development in Ukraine, leading not only to the suspension of housing loans at the end of 2008-2009, but adversely affecting growth rates of the mortgage market in the post-crisis period. Thus, the primary factors that determine the devel- opment of the respective types of securitization in Ukraine are the state of the insurance market and the market of mortgage lending indicators which in- fluence the formation of the need in the use of this mechanism. On the other hand, the deciding factor for the use of securitization operations in Ukraine is the availability of a sound stock market infrastruc- ture that could provide sufficient possibilities to distribute securities related to the securitization of bank assets or insurance liabilities.
As Barth (1991, p. 1) observes regarding federal deposit insurance, "the intent of the federal government was to instill enough confidence in depositors that they would never again engage in widespread and disruptive runs on financial institutions." Presumably, the greater the proportion of deposits covered by federal deposit insurance (FDICOV), the more secure bank depositors might feel and the greater the perceived financial safety and stability of banking institutions. The greater the perceived safety and security of the banks, the lower the perceived riskiness of deposits at banks and hence the lower the commercial bank cost of deposits and hence the higher banking institution profitability. Thus, PROF should be an increasing function of FDICOV.
In the process of providing credit assistance to the investment activities and projects in the economy, financial institutions face inherent risks in the form of default risk which results in build-up of Non-Performing Assets (NPAs) that have a negative effect on the profitability of the financial institutions. Typically a credit transaction involves a contract between two parties: the borrower and the creditor (bank) are subject to a mutual agreement on the ‘terms of credit’. 2 Optimising decision pertaining to the terms of credit could differ from the borrower to that of the creditor. As such, the mutual agreement between the borrower and the creditor may not necessarily imply an optimal configuration for both. The most important reason for default 3 could be mismatch between borrower’s terms of credit and creditor’s terms of credit. However, a common perspective is that both the cases of defaulter and non- performer imply similar financial implications, that is, financial loss to banks. Moreover, regulatory and supervisory process does not focus on such a distinction between defaulter and non-performer as far as prudential norms are concerned.
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Several panel studies using different country samples, data from different time spans and diverse proxies have found many different results regarding the association between financial development and economic growth. For example, a positive relationship was found in the study carried out by Odedokun (1996) which used liquid liabilities as measure of financial depth in 71 countries from 1960-1980 and found evidence that this measure is positively related with the growth of real GDP and that, although financial intermediation more strongly promotes growth in low income countries, its effects are invariant across countries. Similar results were found by Beck et al. (2000) and Levine et al. (2000) who also included credits to the private sector and commercial bank assets as indicators of financial development. In transition economies Akimov et al. (2009) found a robust positive link between finance and growth and the same result was found in a sample of less developed countries by Dawson (2010). Loayza & Ranciere (2002), on the other hand, focused on the long- and short-run association of finance and growth using pooled mean group estimators and found that a positive long-run relationship between financial development and economic growth co-exists with mostly negative short-run relationships. A negative relationship between financial development and growth was found by De Gregorio & Guidotti (1995) with panel data from Latin American countries. Benhabib & Spiegel (2000), in a sample of four countries concluded that the results of assessing the finance-growth relationship largely depend on the indicators used and on country-specific effects. In samples of 22 market economies and 11 transition countries Fink et al. (2005) find that, while in transition economies financial development seems to induce economic growth, in market economies the link appears to be weak and fragile, concluding that, in general, the financial sector and its different segments have diverse effects on economic growth in each country. Rioja & Valev (2004) find that the effect of finance on growth is not uniformly positive and that financial development strongly contributes to economic growth when a size threshold is reached. Rousseau & Wachtel (2000) find a strong positive relationship that weakens with the increase in inflation rates.
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Furthermore, the advance of socialism led governments to intervene in the direction, rationing and control of bank credit, a tendency given further impetus by the exigencies of war finance in 1939-45. With many governments leaving the war with massive debts, a continuing defence burden and aspirations to a new Welfare State, it was natural to see their own financial intermediaries as a parking ground for their own debt, partly under the pretext of bank liquidity requirements. Under conditions of reconstruction and a dollar shortage, the authorities directed the constrained amount of bank lending for the private sector towards the large, exporting manufacturing companies. The service sector, importers and persons, apart from the latter’s access to specialised mortgage institutions, S&Ls and building societies, were to be denied credit. So commercial bank assets consisted primarily of lending to government or to long-established large manufacturing companies. It was not efficient, but it did have the merit of being a safe system.
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The financial sector plays an important role in the development of the country. For sustainable economic growth, a country must have a strong banking sector. The Kenyan banking sector has experienced several challenges over time. The government has implemented several reforms to enhance growth and competition in this sector. To achieve financial stability and growth, it is important to identify the determinants of performance of the financial sector. This paper aimed at investigating the impact of the internal determinants of profitability of Kenya`s top six commercial banks over the period 2008-2013, This paper used generalized least squares method to estimate the impact of bank assets, capital, loans, deposits and assets quality on banks profitability. This paper used return on assets (ROA) as a measure of profitability. The findings revealed that bank size, capital strength, ownership, operations expenses, diversification do significantly influence profitability of the top six commercial banks. The result suggests that the Kenyan Government should set policies that encourage commercial banks to raise their assets and capital base as this will enhance the performance of the sector. Another implication of the study is that commercial banks need to invest in technologies and management skills which minimize costs of operations as this will impact positively on their growth and survival.
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This Table shows the regression results on the determinants of the likelihood to issue equity and to decrease assets under a Multinomial Logit setting. The models are estimated via a Random Multinomial Logit estimator with clustered standard errors that controls for unobserved bank heterogeneity. The dependent variable is a limited variable that takes the value of 1 if a bank has issued equity in a given year, the value of 2 if the bank’s total assets are reduced but no equity issues have taken place in the year and zero otherwise. The explanatory variables include bank and country characteristics. POORLY_CAPITALIZED is a dummy equal to one if a bank is in the first quartile of the equity/assets distribution, POORLY_CAPITALIZED_Y is a dummy equal to one if a bank is in the first quartile of the yearly equity/assets distribution, RISK is the volatility of the daily prices computed over the last quarter before the issue, RELPTB is Price to book ratio divided by the average Price to book ratio computed yearly at country level, ROA is the ratio between net income and total assets; YEARLISTED is the log of the number of years a bank has been listed in stock market, SIZE is the log of total assets measured in thousands of US dollars, DEPOSITS is computed as total customer deposits over total liabilities and MERGERS is a dummy equal to 1 if a bank has been involved in a merger during the quarter, CPP is a dummy equal to one from the first quarter after a US bank has received capital support via the Capital Purchase Program, RESCUE is a dummy equal to one from the first quarter a non-US bank has received capital support . Country controls includes an index of regulatory independence (REG_INDEPENDENCE), an index measuring the regulatory strength (REG_STRENGHT), the ratio between public sector debt and country GDP (PUBLIC_DEBT) the total shares traded divided country GDP (SHARE TRADED) and the total accounting value of bank's net interest revenue as a share of its interest- bearing (total earning) assets (MARKET POWER), a dummy equal to one for the first two quarters following a systemic shock (SYSTEMIC_SHOCK_2). Standard errors are reported in round brackets in parentheses *** (**,*) indicates significance at the 1(5,10) percent level.
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The Indian financial system was quite well developed even before the Independence and unrestricted until the 1960s when the government started to use controls for the purpose of directing credit towards development programs. By the end of 1960s, fourteen major commercial banks were nationalized and all commercial banks (private and public) were directed to lend to priority sectors. During 1970s, directed credit took the major share of domestic lending and controls on exchange rates and interest rates became the common components of this tightly restricted financial system. Thus, until the 1980s international capital inflows and outflows were highly restricted and the purchase of foreign assets by residents, direct investment by foreigners and private external borrowing were absolutely prohibited. Following the balance of payments crisis in 1991, a stabilization program was initiated with the help of IMF. By 1993-94, the rupee was made convertible on the current account with market determined rates. In 1994 India moved to full convertibility on current account transactions and formally accepted the obligations under Article VIII. 20,21
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Table 4 clears that the defaulting borrower first causes of NPA is cost overrun followed by second causes is repaying the money lenders. The third cause is time over run and a fourth cause is unexposed to marketing and product. The fifth cause is misappropriation of funds and sixth cause is unemployment of the borrowers. The seventh cause is managerial deficiencies and eight causes is investing in high risk assets. The ninth cause is business failure/ market failure and ten cause high rate of interest. The eleventh causes is natural calamities followed by twelfth cause is utilization of loan to repay the old loan. The thirteen cause is high EMI followed by fourteen cause is raising interest rate. Fifteen cause is low income of family followed by sixteen cause is lack of support from parents. Seventeen causes are lack of remainder from bank followed by eighteen cause is delay in release of sanctioned limits by banks. Nineteen cause is personal problem followed by twentieth cause is lengthy and time taking procedure of lending. Twenty one causes is unforeseen events and last cause is lack of education of borrowers.
The implication of such advances that income can be recognised means that only the account becomes NPA, while the interest will not be debited to the account. Not only this, but the banks are required to create provision reserves against non performing loans ranging from 10 % to 50% in loss asset cases up to 100% based on record of recovery and security. In such circumstances the primary concern of any bank has to keep the assets performing so that they get income on a regular basis and they are not required to make any provision against the loan assets. Otherwise it will not be possible to lend profitability.
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creases during boom period while it increases during recession, because of the use of collateralized borrowing and lending (D’Hulster, 2009). This pushed for proposals for countercyclical capital re quirements and loan loss provisions that would be higher in good times and lower in bad times. Capital is infact a safeguard against uncertainty as testified by the stress test for adverse economic and financial market conditions, applied to the 19 largest bank holding companies in the spring of 2009 (see Board of Governors 2009). As well capitalized banks face lower costs of going bankrupt and of suffering losses, we try to look for the main factors of losses by analyzing the structure of the banks who suffered more.
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In Figure 5, we decomposed money base into NFA and the various components of the NDA over the sample period (i.e., net credit to central government, NCCG, net indebtedness to banks and public, NICBP and other items net, OIN). It can be observed that prior to 2003 (except between 1989 and 1991) the NCCG had been predominantly the largest component of the monetary base. NFA and NICBP have mainly been negative, thus serving as offsetting factors. This reflects the BoG’s use of both foreign exchange market intervention and sales of securities to the private sector as well as reserve requirement for monetary management. For example, since 1990, the steady increases in the secondary reserves requirement (reaching 35% in 2004) has increased commercial banks holding of government securities, and hence the BoG’s indebtedness to the commercial banks 11 . Later, when the NFA became a major source of liquidity, there was pressure on the BoG to sterilise via reduction in the NDA. However, because of the inherent fiscal weakness and the resulting persistent PSBR, reduction in the NDA has been mainly via decreased NICBP. As noted earlier, this reduction is achieved first by forcing banks to acquire government’s securities and BoG’s bills using their primary and secondary reserve requirements 12 . Later, the BoG resorted to OMO as the major instrument of monetary management. Between 2001 and early 2002, government’s official borrowing was mainly from the non-bank public, and moved from a net borrower to a net depositor in the banking system as its fiscal position improved.
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Finally, the static models are estimated using bank and year fixed effect regression estimation while the dynamic model is estimated using first-difference bank and year fixed effects based on Arellano and Bond (1991) Generalized Method of Moments (GMM) first-difference estimator. The GMM estimator takes into account the dynamic adjustment to bank return on assets, that is, the need to use lagged dependent variable in the model to capture the dynamic behavior of ROA; and to control for the endogeneity of the explanatory variable(s) arising from first differencing. For the dynamic estimation, we use simple first-difference GMM based on Arellano and Bond (1991). The first- differenced lagged dependent variable is instrumented with its past levels (lagged values) whereas the other variables are considered as strictly exogenous.5 AR(1) and AR(2) statistics are reported to test for lack of first- and second-order serial correlation in the first differenced residuals. The Sargan test is also reported to test for the absence of correlation between the instruments and the error term.
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Review of empirical literature suggests that both cross interest elasticity of substitution among various financial assets and F-M dual criteria are widely employed to study appropriate monetary aggregates. Friedman and Meiselman (1963) proposed and applied the F-M dual criterion to the annual time series of U.S. monetary data from 1929 to 1952. They found that M2 definition of money was the most appropriate monetary aggregate at that time. The results, when applied to the quarterly data for the period 1946-58, also favored M 2 .
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From the table given above, we can see the position of Bank. A risk ratio was low in the year 2012-13. After that it is increasing year by year and reached to 77.75% which is the highest in the given period. This indicates the bank has failed in making provisions against NPAs. However, it is not the good sign that the risk ratio is increasing, the bank has to take some instant actions to lower down the risk or it can affect the goodwill, market price of the shares and the competitive market. This signifies that the shareholder’s fund in this bank are not clearly safe.
This study seeks to assess the effect of working capital management on the profitability of Afriland First Bank Cameroon. Time series data from 2002 to 2013 was extracted from the financial statement of the bank, Correlation analysis and ordinary least square regression was used to determine how working capital affect profitability. The findings of this study show that working capital management effectively influences the performance of Afriland First Bank. The analysis show that customer deposits, the size of the bank, outstanding expenditure and return on assets all have a positive impact on bank profitability and are statistically significant, however, an increase in reserves leads to a reduction of profitability while other factors such as leverage have a positive effect on bank profitability.
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The UBI is constructed at the macro level for 21 countries and at the micro level for 102 banks. A dynamic panel model is then used for bank-level data with a twofold objective. First, we assess the extent to which a universal banking model, as measured by the UBI, relates to banking profitability, stability, liquidity and capitalisation. The share of noninterest income to total income is also considered in the several specifications to allow for a comparative analysis. Secondly, we test how a complex business model, featuring both financial products provision diversification and globalization, relates to banking profitability, stability, liquidity and capitalisation. This allows to capture the geographical diversification feature which applies to many banks in our sample and to account for the fact that banks that are both universal and global may have different risk exposures than banks that are universal only. As argued by Calomiris and Mason (2000) and Carlson (2004), geographical diversification in banking is associated with a higher probability of default as it stimulates banks to hold less reserves and to limit their portfolio diversification.
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The banks should thoroughly analyze the credit worthiness of borrower before lending and they should acquire collateral have sufficient monetary value so that in case of default the bank not only take over the collateral security but also gain profit on sale of that particular security. It will reduce the less loan loss provisions (bad debts) thus increase profitability. The bank size in terms of total assets should be diversified up to certain limit because it leads to lower credit risk and thus lower returns, as bank raise its assets by two ways; debt or equity financing on debt financing bank has to pay interest which is a cost thus, higher total assets with less earning assets leads to lower profitability.
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close to zero. This means that they generally report items that are estimated to be easy to report, but not the difficult items. A country moves away from zero either when it reports the more difficult items related largely to non-bank financial institution data (thereby achieving higher positive scores), or when they do not report the easy items (thereby earning negative scores). On average, international reporting of financial regulatory data increased from 1990 through about 2005. From 2006, report- ing declined, with most of the years with the steep- est declines occurring during the recent financial crisis. There is another interesting and possibly related dip in average global transparency: while average transparency largely increased from 1990 through the mid-2000s, there was a noticeable stagnation in 1997 and 1998. This was the height of another multi-country financial crisis and, as we discuss further below, during the multi-country restructuring of the French bank Crédit Lyonnais – the largest bank failure up to that point.
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Loss assets: A loss asset is one where loss has been identified by the bank or internal or external auditor or the RBI inspection, but the amount has not been written off wholly or partly. In other words, such an asset is considered uncollectible and of such little value that its continuance as bankable asset is not warranted although there may be some salvage or recovery value. However, only those advances are classifying as loss assets where no security is available. The accounts in relation to which some security/DICGC/ECGC cover is available cannot be treated as loss assets. Banks are to provide 100% provision regarding loss assets.
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