Resolving the puzzle which financial indicators persistently indicate severe disruptions in the business of banking, is of the utmost importance for prudential authorities. Thus, the intent of this ...paper is to outline microeconomic determinants of bankruptcies within the banking sectors of the EU-15 countries and to clarify the role of bank capital in it. Namely, the bank capital regulation is designed as both, ex-ante (bankruptcy prevention) and ex-post (bankruptcy costs reducer) regulatory instrument. Backward stepwise logistic regression was applied on the Bankscope data sample of around 60 commercial banks in the period that preceded the global financial crisis. Estimations were obtained for the year in which a certain bank bankrupted as well as for each year over the five-year period prior to the bankruptcy. Research findings confirm that a number of financial indicators, such as asset quality and liquidity indicators could serve as early warning signals of bank failures even five years before the bankruptcy. The results for bank capital ratios were non-persistent regarding their sign and significance in the year preceding the bankruptcy and several years prior to bankruptcy. Finally, the most convincing results speak in favor of the too-big-to-fail phenomenon, as bank size explains the most of its survival odds.
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Reverse mortgage is an alternative source of financing of elderly population that usually has some homeownership, but insufficient income and savings to support desired or indispensable level of ...consumption. It is a financial innovation mostly provided by banks and finance companies to seniors, which enables a home equity conversion to liquidity without selling or leaving a property. In circumstances of ageing society, modest pension income, increasing long-care expenditures, limited access to loan market and high risk of poverty, a reverse mortgage product has a solid ground for implementation and adoption. Croatia is an ageing country with negative demographic trends, which accelerated in the last few years. Retired population which is “home rich and cash poor” is particularly vulnerable and at strike to sustain a decent life. Therefore, we raised a question concerning the justification of the reverse mortgage introduction in Croatia. After giving an insight into some contextual factors, an estimation of the potential demand for reverse mortgage service in Croatia was made by carrying out an exploratory – pilot study with around 120 questionnaire respondents. We found out that there is a poor knowledge about the reverse mortgage among Croatian financial consumers (i.e. only 24% of respondents are familiar with the reverse mortgage term), as well as the lack of demand for this home equity extraction instrument. Namely, almost 67% of respondents would not accept a reverse mortgage instrument regardless of the circumstances, primarily due to socio-cultural reasons.
Regulating bank behavior throughout capital requirements has been a focal point of prudential regulation since the late 1980s. However, their beneficial effect on the banking sector's safety and ...soundness was disputed ever since their initial implementation, mainly due to an assumption that they deteriorate bank profitability and increase the odds for the enlarged risk appetites of bank managers, especially in the highly competitive financial markets. On the other hand, bank profitability is driven by many factors other than compliance with capital regulation. Concerning that, a question about the capital requirements' impact on bank profitability was raised in this paper. The dynamic panel data analysis served to examine the consequences of bank capital regulation for the Croatian banking sector profitability, by taking into observation 24 commercial banks in the 2011-2016 timespan. The impact of capital regulation on the return on assets and net interest margin was positive, while for the return on equity a negative relationship was found. It was concluded that banks transfer regulatory costs on their clients, which was approximated with the net interest margin. In addition, results reveal that the overall bank profitability is achieved at the expense of bank shareholders. Thus, a more cost-efficient approach to managing a bank is suggested.
In numerous Central and Eastern European (CEE) countries, the global financial crisis as well as the unpegging of the foreign exchange rate of the Swiss franc (CHF) against the euro amplified the ...repayment troubles of households with the outstanding CHF-linked debt. In Croatia, the CHF loans were approved mainly as mortgages to unprotected and subprime household borrowers without sufficient credit capacity for long-term euro-linked loans, which also contained a possibility of an incremental interest rate change, i.e., the so-called administrative interest rate. This article aims to disclose the reasons behind the credit boom of these loans, the unsustainable CHF debt hardship that the household sector consequently faced, and how it was/could have been resolved, with the Croatian banking sector at the center of the research. Although the CHF case of Croatia has some specificities concerning the prudential regulation and government-sponsored loan conversion, the findings about the supply and demand determinants of the CHF credit boom, as well as a critical assessment of the Croatian government and central bank interventions, might be useful for timely noticing universal threats from the exotic currency-linked loans for the systemic risk and financial stability, and for minimizing the negative externalities from probable debt relief measures. Based on the descriptive and univariate statistics conducted on Bloomberg and the Croatian National Bank (CNB) data, it was found that interest rate differentials and carry trading behavior were the main reasons for the rapid CHF credit growth in Croatia. Nevertheless, according to the financial experts' opinions obtained via a questionnaire survey, and the court verdicts reached since, the financial consumer protection when contracting these loans was severely violated, which implies that the central bank must enhance its consumer protection role. By adopting a single-country and holistic approach, this is the first paper that deals with the socioeconomic dynamic of the CHF credit default issues in Croatia, which might be interesting as a case study or for making comparison with other CEE countries that have been coping with negative consequences of Swiss francization.
We investigate a relevance of the corporate social responsibility of banks from the students’ point of view. By doing so, we can pinpoint a compliance of the Croatian banks’ corporate social ...responsibility praxis with the expectations of students’ population as their current and/or future customers. Moreover, as we focus on the students of the higher years of studies at the Faculty of Economics, University of Split, who are potential employees or even future managers in the financial services industry, the results which are obtained throughout a questionnaire research might be perceived as a sort of a wider empirical verification of the stakeholder theory approach to corporate social responsibility. According to 163 responses, corporate social responsibility performance of banks in Croatia seems to be important to students, and some noticed disparities in their attitudes are discussed with regards to their socio-demographic characteristics. Nevertheless, most of students perceive an image and public reputation improvement to be the main driver of corporate social responsibility achievements in the Croatian banking sector, and thus they ask for a more responsible banking, especially from the foreign-owned banks. Apart from the identified policy recommendations in the corporate social responsibility area for the Croatian banks, students support the idea that faculties of economics should educate their students more on the ethical issues in business practices.
Accounting information was often used to determine the effect of quality management initiatives. Relation between quality management and financial performance of the companies was extensively ...explored but with the conflicting results. The most recent studies introduced intermediary factors between quality management and financial performance. The objective of this paper is to determine the effect of quality management system maturity of companies on their long-term financial performance. The empirical research was conducted on the large-sized companies in Croatia that hold ISO 9001 certificate. The multivariate statistical analysis was used to support the hypothesis on quality management system maturity adding to companies’ financial performance. Results confirmed that the companies with more mature quality management system have better long-term financial outcomes (measured by EBIT margin, ROA, solvency ratio and financial costs ratio) than the companies with the initial maturity stages of quality management system.
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The interdependence between the regulatory capital ratio and macroeconomic indicators, with reference to the phenomena cyclicality and pro-cyclicality is a widely emphasized disadvantage of the ...capital adequacy concept. Redesign of the aforementioned concept towards the countercyclical capital requirements is a kind of recognition of the creators of the Basel standards of the previous oversights in its development. This paper aims to explore empirically the direction, intensity and significance of endogenous and exogenous determinants of the changes in banks' capital buffers by taking into consideration both the impact of the macroeconomic properties and the bank-specific characteristics of South-Eastern Europe. More than 80 commercial banks in the period from 2000-2010 have been encompassed by the research. Use of a dynamic panel analysis led to the conclusion that the bank capital buffers decreased during the observed period, with the exception of certain years during the economic expansion, which confirms the appropriateness of regulatory requirements considering the countercyclical capital buffers. Nevertheless, it might be that capital building and spending in the future will not follow the pattern from the last decade due to the specificities of the observed period, as well as the banking sector ownership transformations, economic and credit growth as well as asset prices growth in the post-transitional period, and finally, the real crisis which spilled over onto the financial sectors.
We focus on 32 Croatian banks in the period 2002-2010 in order to investigate the solvency-liquidity nexus. Dynamic panel data analysis is applied on two basic models in which current liquidity ratio ...and equity to assets ratio are set as dependent variables, interchangeably, and other explanatory variables employed to capture the effect of bank size, profitability and asset quality as well as macroeconomic environment. We found two-way positive relationship between bank solvency and liquidity. However, bank size plays an important role in the capital and liquidity management, and trade-off between the solvency and liquidity level is found for the larger banks. Therefore, policymakers should take into consideration capital and liquidity interdependence, as well as the bank size effect when designing capital and liquidity requirements in order to downsize the regulatory burden for smaller banks, and increase them for larger banks. Namely, larger banks tend to minimize regulatory costs by avoiding simultaneous increase of liquidity and solvency. Small banks do exactly the opposite and stock both, capital and liquidity, what potentially makes their funds allocation sub-optimal, from their own as well as social point of view. Altogether, the paper contributes to scarce empirical evidence regarding bank solvency and liquidity interdependence, particularly when the post-transitional banking sectors are taken into consideration. It adds to knowledge on bank financial management in praxis, and bank managers and prudential authorities might find it relevant for their policies design and implementation.
Standardi adekvatnosti kapitala nastali su i opstaju u vjeri da njihova primjena ima blagotvorne učinke za stabilnost bankarskog sustava. S druge strane, prošla i tekuća kretanja svjedoče o njihovoj ...nedovoljnoj funkcionalnosti u sprječavanju nestabilnosti ovog sektora. Kako bilo, nadnacionalni i nacionalni regulatorni autoriteti ne posustaju u modificiranju kapitalnih zahtjeva te obvezivanju banaka na njihovom udovoljavanju. Ovaj rad ima za cilj analizirati i sistematizirati slabosti promatrane regulatorne mjere, identificirane u teorijskim i empirijskim istraživanjima o predmetnoj problematici te tako poslužiti kao uporište za buduću diskusiju i potencijalnu empirijsku kvantifikaciju učinaka od primjene kapitalnih zahtjeva.
Discriminant analysis has been employed in this paper in order to identify and explain key features of bank profitability levels. Bank profitability is set up in the form of two categorical ...variables: profit or loss recorded and above or below average return on equity. Predictor variables are selected from various groups of financial indicators usually included in the empirical work on microeconomic determinants of bank profitability. The data from the Croatian banking sector is analyzed using the Enter method. General recommendations for a more profitable business of banking found in the bank management literature and existing empirical framework such as rationalization of overhead costs, asset growth, increase of non-interest income by expanding scale and scope of financial products proved to be important for classification of banks in different profitability levels. A higher market share may bring additional advantages. Classification results, canonical correlation and Wilks' Lambda test confirm statistical significance of research results. Altogether, discriminant analysis turns out to be a suitable statistical method for solving presented research problem and moving forward from the bankruptcy, credit rating or default issues in finance. PUBLICATION ABSTRACT
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