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Banks’ capital buffers, risk, and efficiency in emerging economies: are they counter-cyclical?

  • Syed Moudud-Ul-Huq
Original Paper
  • 14 Downloads

Abstract

This paper examines the relationship of banks’ capital buffers, risk and efficiency adjustments with cyclical movements. Empirically, we have used dynamic panel data from 461 banks of the BRICS countries (i.e., Brazil, Russia, India, China, and South Africa) for the period 2007–2015 and we also have empirically included Stochastic Frontier Analysis (SFA) to measure the efficiency. In contrast to the consequence of past investigations, this examination additionally affirms the noteworthy effect of macroeconomic fluctuations on the determination of capital buffers, risk and efficiency. The key results of five big emerging countries are as follows: (1) capital buffers of Russia, India, China, and South Africa behave counter-cyclically while it is pro-cyclical for Brazilian banks over the business cycle; (2) there is an anti-cyclical (pro-cyclical) and significant relation between risk (stability) and business cycle for four countries and no significant relation for South Africa; (3) it shows pro-cyclicality of bank’s efficiency except for South African banks; and (4) notably, the adjustment speed of capital buffers is higher for Chinese and Indian banks than Brazilian, Russian and South African banks. Finally, it provides some policy implications for the emerging economies regarding capital buffers, risk, and efficiency adjustment decisions.

Keywords

Capital buffers Risk Efficiency Business cycle BRICS Stochastic frontier analysis (SFA) 

Notes

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

Supplementary material

40822_2018_121_MOESM1_ESM.docx (22 kb)
Supplementary material 1 (DOCX 22 kb)
40822_2018_121_MOESM2_ESM.docx (28 kb)
Supplementary material 2 (DOCX 27 kb)

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Copyright information

© Eurasia Business and Economics Society 2018

Authors and Affiliations

  1. 1.Department of Business AdministrationMawlana Bhashani Science and Technology UniversityTangailBangladesh

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