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Impact of Basel III framework on financial distress: A case study of Pakistan

Author

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  • Saba, Irum
  • Ashraf, Hafiz Muhammad Waqas Ashraf
  • Kouser, Rehana

Abstract

Purpose: New liquidity rules phased under the Basel lll define the new stable funding ratios (NSFR) increase the stability of the funding structure of the financial institution. Using a Pakistani banking data, we tested the relevance of both Structural liquidity and Capital ratios as defined in the Basel lll. We used the broad definition of the failure and distress to check the status of the banking sector. If the banks fail, then it denoted by 1 otherwise 0.& We use the logistic regression in our study. Estimate from several versions of the logistic probability model indicate that the likelihood of failure and distress decrease with increase liquidity holding while capital ratios are not significant. Our result provides support for the Basel lll that the NSFR has the inverse relation with the bank failure and distress. This study also compared the two versions of the NSFR. NSFR-10 and NSFR-14 are the two versions. Our analysis tells that the NSFR-14 is more reliable as compare to the NSFR-10. We also check the bank situations whether it lies in the failure and distress condition or in active banks. In this study we also check the other variables that have an important impact on the stability and failure and distress of the banks.

Suggested Citation

  • Saba, Irum & Ashraf, Hafiz Muhammad Waqas Ashraf & Kouser, Rehana, 2017. "Impact of Basel III framework on financial distress: A case study of Pakistan," Journal of Accounting and Finance in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 3(1), pages 1-20, June.
    • Handle: RePEc:src:jafeec:v:3:y:2017:i:1:p:1-20
    DOI: http://doi.org/10.26710/jafee.v3i1.198
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    Cited by:

    1. Ayesha Afzal & Nawazish Mirza & Fatima Arshad, 2021. "Market discipline in South Asia: Evidence from commercial banking sector," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2251-2262, April.

    More about this item

    Keywords

    G21; G33; G32; Framework; Financial distress;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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