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Bank Risk and Financial Development: Evidence From Dual Banking Countries

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  • Baharom Abdul Hamid
  • Wajahat Azmi
  • Mohsin Ali

Abstract

This study examines the impact of financial development on bank risk-taking, measured as bank capitalization and bank income diversification. We observe the relationship using annual bank-level data from countries with dual-banking systems. The dataset spans from 2000 to 2014. Our results suggest that the impact of financial development on bank capitalization is heterogeneous across Islamic and conventional commercial banks. Moreover, the effect is different across listed and unlisted banks. However, on average, the response of income diversification to financial development is similar across most specifications. Additionally, bank risk is found to be countercyclical, suggesting that bank risk increases in good times. On average, these results (countercyclical evidence) hold across bank types (Islamic and conventional) and ownership structure (listed and unlisted). However, these results are contingent on the size (small vs. large) factor. The results are robust to alternative proxies of financial development.

Suggested Citation

  • Baharom Abdul Hamid & Wajahat Azmi & Mohsin Ali, 2020. "Bank Risk and Financial Development: Evidence From Dual Banking Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(2), pages 286-304, January.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:2:p:286-304
    DOI: 10.1080/1540496X.2019.1669445
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    8. Li, Li, 2023. "Commodity prices volatility and economic growth: Empirical evidence from natural resources industries of China," Resources Policy, Elsevier, vol. 80(C).
    9. M. Kabir Hassan & Md Nurul Islam Sohel & Tonmoy Choudhury & Mamunur Rashid, 2024. "A systematic literature review of risks in Islamic banking system: research agenda and future research directions," Risk Management, Palgrave Macmillan, vol. 26(1), pages 1-29, February.
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    12. Bayront Yudit Rumondor & Pakasa Bary, 2020. "Capital Flows and Bank Risk-Taking Behavior: Evidence From Indonesia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 33-53.
    13. Nguyen, Tran Thai Ha & Tu, Yu-Te & Diep, Gia Luat & Tran, Trung Kien & Tien, Nguyen Hoang & Chien, FengSheng, 2023. "Impact of natural resources extraction and energy consumption on the environmental sustainability in ASEAN countries," Resources Policy, Elsevier, vol. 85(PA).
    14. Zhang, Can & Liang, Qian, 2023. "Natural resources and sustainable financial development: Evidence from South Asian economies," Resources Policy, Elsevier, vol. 80(C).
    15. Rita Parmawati & Fadli Mulyadi & Rosyani Rosyani & Suaedi Suaedi & Yunikewaty Yunikewaty, 2023. "The Role of Environmental Education and Green Supply Chain Practices in Achieving Sustainable Development: Evidence from Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 13(1), pages 421-430, January.
    16. Fang, Ming & Chang, Chiu-Lan, 2023. "The role of COP26 commitment and technological innovation in depletion of natural resources: Evidence from BRICS countries," Resources Policy, Elsevier, vol. 81(C).
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    18. Yanto Ramli & Deden Kurniawan & Erna Sofriana Imaningsih & Tine Yuliantini & Sri Anah & Anees Janee Ali, 2023. "Imposing Green Management to Enhance the Organizational Awareness against the Environmental Sustainability," International Journal of Energy Economics and Policy, Econjournals, vol. 13(1), pages 518-528, January.

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