Analysing the Return on Asset to Construct Foretelling Indicator for Bangladeshi Banking Sector

Financial institutions and banks are required to follow mechanisms to monitor the positions and create stimulas for sensible risk-taking by divisions a well as individuals. Risk measurement comprises of the quantification of risk exposures, whereas risk management demonstrates to the overall procedures by which managers fulfill these needs to identify the risks and recognise the category of the risks it faces. This research targerts on the economic instability faced by banks in financial arena in terms of the crises affairs in regard of economic distress. Here, the methodology followed is based on the CAMELS framework variables. CAMELS is a short form stands for: capital adequacy (C), asset (A), management (M), earnings (E), liquidity (L) and sensitivity to market risk (S). Based on these nomenclature, a couple of variables should be selected, such as capital asset ratio, cost income ratio, non-performing loan, non-interest income as component series and return on asset (ROA) as the reference series to identify turning points of economic volatility in banking sector of Bangladesh. Thus, by forecasting the directional deviations it could make financial policymakers aware of the changes at early stage in financial markets and banking industry and privilege them to undertake precautionary steps for preventive purposes. The constructed MPI should have a incredible lead time of about 5 to 7 months on an average in case of prediction against leading for the reference series. By renovating financial efficacy of venture banks, Bangladesh also should recover their subsequent banking system to execute these suggestions

A SUCCINCT ANALYSIS OF MITIGATING LIQUIDITY RISK IN ISLAMIC BANKS IN THE LIGHT OF LIQUIDITY AND RISK MANAGEMENT PRINCIPLES

Liquidity management has been incessantly challenging for the financial institutions and especially Islamic financial institutions due to their nature of business. The convoluted nature of liquidity management impedes the task of Islamic banks in managing their liquidity efficiently. Given the intricacies of the subject matter, this paper delves into elaborating the critical aspects of liquidity management; subsequently, discusses the consequences of poor liquidity management and problems inherent in managing the latter by analyzing the real-life failure of an Islamic financial institution as a result identifying the issues that could possibly jeopardize the existence of the Islamic banks. The research aims to provide a comprehensive understanding of the liquidity management framework and furnish with effective tools to mitigate the liquidity risk for the Islamic banks

Financial soundness of Kazakhstan banks: analysis and prediction.

Purpose “ The financial systems in many emerging countries are still impacted by the devastating effect of the 2008 financial crisis which created a massive disaster in the global economy. The banking sector needs appropriate quantitative techniques to assess its financial soundness, strengths and weaknesses. This research aims to explore, empirically assess and analyze the financial soundness of the banking sector in Kazakhstan. It also examines the prediction of financial unsoundness at an individual bank level using PCA, cluster, MDA, logit and probit analyses. Design/Methodology/Approach “ A cluster analysis, in combination with principal component analysis (PCA), was utilized as a classification technique. It groups sound and unsound banks in Kazakhstan's banking sector by examining various financial ratios. Cluster analysis was run on a sample of 34 commercial banks on 1st January, 2008 and 37 commercial banks on 1st January, 2014 to test the ability of this technique to detect unsound banks before they fail. Then, Altman Z and EM Score models were tested and re-estimated and the MDA, logit and probit models were constructed on a sample of 12 Kazakhstan banks during the period between 1st January, 2008 and 1st January, 2014. The sample consists of 6 sound and 6 unsound banks and accounts for 81.3% of the total assets of the Kazakhstan banking sector in 2014. These statistical methods used various financial variables to represent capital adequacy, asset quality, management, earnings and liquidity. Last but not least, the MDA, logit and probit models were systematically combined together to construct an integrated model to predict bank financial unsoundness. Findings “ First of all, results from Chapter 3 indicate that cluster analysis is able to identify the structure of the Kazakh banking sector by the degree of financial soundness. Secondly, based on the findings in the second empirical chapter, the tested and re-estimated Altman models show a modest ability to predict bank financial unsoundness in Kazakhstan. Thirdly, the MDA, logit and probit models show high predictive accuracy in excess of 80%. Finally, the model that integrated the MDA, logit and probit types presents superior predictability with lower Type I errors. Practical Implications “ The results of this research are of interest to supervisory and regulatory bodies. The models can be used as a reliable and effective tool, particularly the cluster based methodology for assessing the degree of financial soundness in the banking sector and the integrated model for predicting the financial unsoundness of banks. Originality/Value “ This study is the first to employ a cluster-based methodology to assess financial soundness in the Kazakh banking sector. In addition, the integrated model can be used as a promising technique for evaluating the financial unsoundness of banks in terms of predictive accuracy and robustness. Importance “ Assessing the financial soundness of the Kazakh banking system is of particular importance as the World Bank has ranked Kazakhstan as leading the world for the volume of non-performing credits in the total number of loans granted in 2012. It is one of the first academic studies carried out on Kazakhstan banks which comprehensively evaluate the financial soundness of banks. It is anticipated that the findings of the current study will provide useful lessons for developing and transition countries during periods of financial turmoil

Predicting Bankruptcy Using Z-Score and Z Double Prime (Z”): A Study of Pakistan Stock Exchange

Due to the unprecedented happenings and dynamic conditions of international economic system, firms are always at the verge of bankruptcy no matter how sound they are, their sustainability is always in jeopardy. Besides, lenders are continuously raising red flags and giving consistent warnings about possible perils of corporate failure due to fragile economic conditions and increasing debt levels in both corporate and individual businesses these days. Hence there was an exigency to ‘develop indicators for monitoring long term progress and sustainability of companies. Thereof it would contribute in illustrating to business analysts, firm stakeholders about the relevance of embracing these active checks for predicting bankruptcy as a sustainable business practice. This created a bizarre cult to look into the matter seriously. For this there is no mantra, no clever feats, sure-fire quick strategies. Instead there are well-defined, simple, systematic and sophisticated models to assess sustainability of companies. Thus, to avoid the tide of massive/substantial corporate failure and any future catastrophe; there is a dire need to identify the most suitable and preeminent model that can truly forecast the likelihood of default ahead of time in given circumstances. And, mainstay of this study is to provide an answer of question in hand by comparing two most venerable model choices i.e. Altman’s Z-score and Z double prime (Z”)

Banking and Finance

The banking and finance industry plays a significant role in the economy of a nation. As such, continuous research and up-to-date feeds are necessary for it to stay competitive and resilient. Due to its revolving and dynamic nature as well as its significance and interlinkages with other industries, a well-functioning banking and finance system is vital in safeguarding the interest of all stakeholders. Banking and Finance covers a wide range of essential topics highlighting major issues related to banking and finance. The book is rich with empirical evidence, scientific researches, best practices, and recommendations, making it a compact yet handy reference for readers, especially those who are in the field of banking and finance

An Adaptive Neural Network Approach To Predict The Capital Adequacy Ratio

Financial institutions, policy makers and regulatory authorities need to implement stress tests in order to test both resilience and the consequences of adverse shocks. The European Central Bank and the European Banking Authority regularly conduct these tests, whose importance is more and more evident after the financial crisis of 2007-2008. The stress tests’ nonlinear features of variables and scenarios triggered the need of general and robust strategies to perform this task. In this paper we want to introduce an adaptive Neural Network approach to predict the Capital Adequacy Ratio (CAR), which is one of the main ratios monitored to retrieve useful information along many stress test procedures. The Neural Network approach is based on a comparison between feed-forward and recurrent networks, and is run after a meaningful pre-processing operations definition. Results show that our approach is able to successfully predict CAR by using both Neural Networks and recurrent networks

Granger-causality of selective Dow Jones islamic and sustainability regional equity indices

Most of the earlier studies on index effects and co-movement of stock markets focused mainly on conventional equity markets. In contrast to previous studies, this research investigated the co-movement of Dow Jones Islamic Market sustainability and its peers Dow Jones Islamic and sustainability regional Europe and US equity markets. The standard time series techniques are applied. The results revealed: (i) Dow Jones Islamic Market Sustainability index is co-integrated with its peers regionals, implying there are potentials for less gain in abnormal profits in the long run, (ii) U.S. regional (Sustainability and Islamic equity) market has more influence on Dow Jones Islamic Market Sustainability than its peers in Europe due to market capitalization factor rather than characteristics’ index (iii) the study tends to suggest that portfolio diversification (risk and return) on ethical index is still largely dependent on well-balanced sectoral allocation to minimize exposure to systematic risks. Our empirical analysis however, has unveiled evidence of a negative risk-return relationship in the selected Dow Jones Islamic and Sustainability equity markets

Insolvency and bankruptcy based on Islamic principles within China – a data-driven analysis and framework

Islamic bankruptcy law and finance have taken on a growing role in modern economies, with several governments aiming to align the economic system with Islamic principles and solve some of the shortcomings of existing financial regulations related to bankruptcies. Within the last 40 years, China has become a major economy with significant development of its legal system. With the increasing growth and engagement with the Muslim world, challenges have arisen with speculative business practices and rising defaults. Furthermore, the growing engagement with Muslim countries has fostered a growing focus on providing Shariah-compliant legal frameworks to encourage trade and ensure the protection of corporations. Insolvencies and bankruptcies are natural in an economy. However, Islam emphasizes the importance of there being no distinction between balance sheet insolvency and cashflow insolvency, as well as the importance of personal responsibility for the debts incurred. The article has presented a solid outline of the Islamic and Chinese bankruptcy laws and how Islamic principles can be integrated into the Chinese legal system. The arising system in the form of either a separate legal system or one integrating these principles into the existing bankruptcy regulations can significantly strengthen debtor responsibility and recovery rates and encourage fairer business practices

8 Міжнародна конференція "Моніторинг, моделювання та менеджмент емерджентної економіки" (M3E2 2019)

Матеріали конференції.Proceedings