France: Credit Control and Formalization of Banking Supervision

The banking supervision in France was formalized with the Banking Acts of 1941 and of 1945. In 1941, the Banking Control Commission as the supervisory agency was created, and rigid financial regulation such as a minimum capital requirement and a separation of banking types was introduced. In connection to the 1941 Act, the four largest commercial banks in France were also nationalized. However, with the German occupation and the wartime situation, the formalization of banking supervision was only completed with the Banking Act of 1945. The essential contents of the 1941 Act were upheld, but the supervisory agency was given a lot of measures to enforce bank regulation. Especially, authorization of rigid penalties enhanced effectiveness of supervisory activities. The main drivers of the formalization of banking supervision in France were the policy measures undertaken during the Vichy regime and the Liberation Government's measures. In the post-Second World War era, the banking supervisory system was used mainly to enforce credit control policy actions, in a period of economic recovery and reconstruction. The banking act of January 1984 decompartmentalized the banking system and changed the institutions of supervision.

Empirical Analysis of Non-Performing Loans and Liquidity of Deposit Money Banks: Nigeria Experience

Nigerian Deposit Money Banks (DMBs) tend to have suffered the plight of Non-Performing Loans (NPLs) in recent times in no small quantum. Consequently, a large chunk of them have had to increase their loan loss provisions and this may dwindle their liquidity. This study investigates the effect of non-performing loans on liquidity of Deposit Money Banks (DMBs) in Nigeria. A panel regression analysis was performed on a data of 15 quoted DMBs from 2009 to 2019, in order to examine the correlation between the explained variable (banks’ liquidity) and Non-Performing Loans (NPL) while other explanatory variables- Capital Adequacy Ratio (CAR), Bank Size (BS), Loan Growth (LG), Monetary Policy Rate (MPR), Gross Domestic Product (GDP) and Inflation were taken into consideration. Data were extracted from the banks’ yearly financial statements and the World Bank Financial Statistics. Based on the empirical findings, the study found only four variables-Non Performing Loans, Capital Adequacy Ratio, Bank Size and Inflation significantly related at 5% significant level with banks’ liquidity while the other three; Gross Domestic Product, Loan Growth and Monetary Policy Rate were identified as insignificant. The finding also revealed that NPLs has negative effect on banks’ liquidity while CAR, BS and INF showed positive relationship. The study recommends strict compliance of banks with the NPLs tolerable limit set by the Central bank. It also suggests that the CBN take proactive measure to ensure the banks’ compliance with the minimum capital requirement. Keywords: Banks, Financial Institutions, Liquidity, Non-Performing Loans, Performance

Minimum Authorized Capital After the Enactment of Job Creation Law: Status Quo, Controversies, and Road Ahead

In a limited liability company, capital becomes one of the primary elements. However, the regulation regarding capital in Indonesia has changed several times, as its latest concern on the enactment of the omnibus bill on Job Creation Law in 2020. This paper discussed the following problems. First, what are the status quo and the development of regulations regarding minimum capital requirements in Indonesia? Second, what are the pros and cons of minimum capital requirement regulations and their developments in other countries? Third, what is the minimum capital requirements regulation that suits the conditions in Indonesia? This paper used legal research, emphasizing literature study. In so doing, the data were analyzed with the deductive method to construct conclusions. This paper showed that each limited liability company from the 1995 Limited Company Law, the 2007 Limited Company Law to the Job Creation Law had various minimum capital requirements provisions that lasted to its abolishment under the Job Creation Law. In this context, the initial policy on the minimum capital requirement was to protect creditors. In practice, however, this policy was not effective because of many other effective alternatives to protect creditors, by encouraging transparency in corporate transactions and offering easy access to corporate information. The dominance of micro and small business units in Indonesia (99% of business units) explained the urgency of eliminating minimum capital requirements regulations. The elimination of minimum authorized capital requirements was a tremendous effort to strengthen micro and small enterprises. KEYWORDS: Limited Liability Company, Job Creation Law, Company Law.

Capital Adequacy Regulation

This chapter aims to provide a concise overview of the capital adequacy regulation, importance of the regulation, and evolution of the capital adequacy regulation. Bank capital executes the significant role of preventing the bank from failure and acts as a buffer against possible losses. Capital adequacy is the least amount of capital a bank has to preserve to execute the business, take advantage of profitable growth opportunities, absorb losses, and sustain the customers’ confidence on it. Several bank crises and bank defaults motivate the Basel Committee on Banking Supervision to provide a comprehensive guideline in managing bank capital. The capital adequacy regulation is an international standard to safeguard the banks through setting a risk-sensitive minimum capital requirement. The regulatory authority sets the regulatory capital, and the operating banks are required to maintain the adequate level of capital.

Determinants Non-Performing Financing (NPF) in Indonesia

This study aims to analyze the significance effect of Minimum Capital Requirement (KPMM), Financing to Deposit Ratio (FDR), Operating Expenses to Operations Revenue (BOPO), and Gross Domestic Product (GDP) toward Non-Performing financing (NPF) at Sharia Commercial Banks in Indonesia. This study uses analysis multiple linear regression (PLS) method. The sample in this study is the quarterly Sharia Commercial Banks (BUS) in the period of 2014-2019. The result of this study showed that KPMM, FDR, BOPO, and GDP simultaneously have a significant effect toward NPF. Partially KPMM, FDR, and BOPO have a significant effect toward NPF, and GDP partially not significant effect toward NPF in Indonesia Sharia Commercial Banks period 2014-2019.

A Study on the Impact of Capitalization on the Profitability of Banks in Emerging Markets: A Case of Pakistan

A strong capitalized position of financial institutions is essential to ensure their solvency. Because of their unique nature, banks must always keep an optimum level of capital to ensure smooth banking earnings. Consequently, it is mandatory for all types of banks operating in Pakistan to keep a minimum amount of required capital along with capital adequacy to remain solvent and profitable. Therefore, using three measures of capitalization, i.e., the Capital Ratio (CR), Capital Adequacy Ratio (CAR), and Minimum Capital Requirement (MCR), and four measures of profitability, i.e., Return on Avg. Assets (ROAA), Return on Avg. Equity (ROAE), Net Interest Margin (NIMAR), and Profit Margin (NMAR), this study contributes to the existing literature on the relationship between the capitalization and profitability of 29 Pakistani banks over the period of 2007–2018. The results, based on the Generalized Method of Moments (GMM) system estimator technique, reported an inverted U-shaped relationship between the two capitalization measures, i.e., CR and CAR, and the four profitability measures, i.e., ROAA, ROAE, NIMAR, and NMAR. This indicates that profitability increases with an increase in capitalization up to a certain level, while beyond that level, a further increase in capitalization decreases profitability. The results also indicate that banks who maintain their MCR have higher profitability than those who do not.

The Determinants of Intellectual Capital Performance of Banks in Ghana: an Empirical Approach.

The objective of the study is to examine the variables that determine intellectual capital performance (ICP) of Ghanaian banks. The study applies the Value Added Intellectual Coefficient (VAIC™) model to estimate the ICP of banks, the data envelopment analysis technique to compute the technical efficiency (TE), and cost efficiency (CE) scores while ratio analysis is used to proxy the other variables. The study used an unbalanced panel data of 29 banks over the period 2000-2014 and the panel corrected standard error (PCSE) regression model is used so as to account for heteroscedasticity. Generally, the significant determinants of ICP are research and development investment (R&D), the efficiency of investment in human capital (HCInv), leverage, operational risk, insolvency risk (IR), diversification and return on asset (ROA). R&D, IR and ROA have a significant positive impact on ICP. HCInv and leverage have a significant negative effect on ICP. Diversification significantly enhances ICP but barriers to entry lower ICP. Size and TE negatively affect ICP while CE weakly but positively determines ICP. Bank of Ghana's policy to increase the minimum capital requirement is a good one and will reap the benefit of having a stable, stronger and resilient banking industry which strive for value creation. Banks should consider diversifying their operations so as to increase value. This can easily be done well if R&D is at the core of their operations. Bank managers should factor pricing decisions (strategies) in their attempt to increase value added.

Takaful, Insurer type and Efficiency: An Application of Parametric Approach

This study is conducted in two steps. Firstly, Stochastic Frontier Approach (SFA) is applied to estimate efficiency of the Takaful and conventional insurance firms in Pakistan from 2005 to 2010. It is found that life insurers are performing poor in comparison to general insurers. In addition, Takaful firms are found less cost efficient in comparison to conventional insurance firms. Secondly, the Tobit results imply that the size, investment and claim are found negatively related with the efficiency of insurance companies which suggests that larger size raise the cost of doing business whereas, due to financial crises the investment of large firms are also dropped. Moreover, improvement in minimum capital requirement is found fruit full both for cost and profit efficiencies. Therefore, it is suggested that the regulators should keep continue this policy to further improve financial health of the insurance industry.