IDEAS home Printed from https://ideas.repec.org/a/taf/oaefxx/v5y2017i1p1326217.html
   My bibliography  Save this article

New perspectives on bank risk in Malaysia

Author

Listed:
  • R.J. Powell

Abstract

Stable banks in individual ASEAN countries are essential to the economic stability of the ASEAN region as these countries move towards the goal of greater financial integration in the region. This study comprehensively explores bank risk in Malaysia as compared to the ASEAN region over an 18-year period which includes the Asian and Global Financial Crises. Metrics used include non-performing loans (NPLs), conditional distance to default (CDD which focuses on tail risk of asset volatility and is the authors own measure of bank default based on an extension to the Merton distance to default (DD) model) and a tail risk (TR) measure being the difference between DD and CDD asset volatility. DD is usually applied to corporate customers of banks but has been applied in the literature to banks themselves, which is the approach used for CDD in this study. Multiple regression analysis is undertaken to assess the impact of CDD on returns. The regression and default results are compared between small and large banks. Malaysian banks were found to have consistently lower risk than the ASEAN region, with smaller Malaysian banks exhibiting greater risk than larger banks during non-crisis periods, but to a lesser degree during crisis periods.

Suggested Citation

  • R.J. Powell, 2017. "New perspectives on bank risk in Malaysia," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1326217-132, January.
    • Handle: RePEc:taf:oaefxx:v:5:y:2017:i:1:p:1326217
    DOI: 10.1080/23322039.2017.1326217
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/23322039.2017.1326217
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/23322039.2017.1326217?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Carlson Mark A & King Thomas & Lewis Kurt, 2011. "Distress in the Financial Sector and Economic Activity," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-31, June.
    2. Darrell Duffie & Andreas Eckner & Guillaume Horel & Leandro Saita, 2009. "Frailty Correlated Default," Journal of Finance, American Finance Association, vol. 64(5), pages 2089-2123, October.
    3. Harada, Kimie & Ito, Takatoshi & Takahashi, Shuhei, 2013. "Is the Distance to Default a good measure in predicting bank failures? A case study of Japanese major banks," Japan and the World Economy, Elsevier, vol. 27(C), pages 70-82.
    4. Masahiro Inoguchi, 2012. "Nonperforming loans and public asset management companies in Malaysia and Thailand," Asia Pacific Economic Papers 398, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    5. McNeil, Alexander J. & Frey, Rudiger, 2000. "Estimation of tail-related risk measures for heteroscedastic financial time series: an extreme value approach," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 271-300, November.
    6. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    7. Ryan Stever, 2007. "Bank size, credit and the sources of bank market risk," BIS Working Papers 238, Bank for International Settlements.
    8. David E. Allen & Robert Powell, 2009. "Transitional credit modelling and its relationship to market value at risk: an Australian sectoral perspective," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(3), pages 425-444, September.
    9. Paul Embrechts & Giovanni Puccetti & Ludger Rüschendorf & Ruodu Wang & Antonela Beleraj, 2014. "An Academic Response to Basel 3.5," Risks, MDPI, vol. 2(1), pages 1-24, February.
    10. Allen, D.E. & Powell, R.J. & Singh, A.K., 2016. "Take it to the limit: Innovative CVaR applications to extreme credit risk measurement," European Journal of Operational Research, Elsevier, vol. 249(2), pages 465-475.
    11. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    12. Mr. Amadou N Sy & Mr. Jorge A Chan-Lau, 2006. "Distance-to-Default in Banking: A Bridge Too Far?," IMF Working Papers 2006/215, International Monetary Fund.
    13. repec:bla:jfinan:v:59:y:2004:i:2:p:831-868 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert J. Powell & Duc H. Vo, 2020. "A Comprehensive Stability Indicator for Banks," Risks, MDPI, vol. 8(1), pages 1-15, February.
    2. Dinh, Dung V. & Powell, Robert J. & Vo, Duc H., 2021. "Forecasting corporate financial distress in the Southeast Asian countries: A market-based approach," Journal of Asian Economics, Elsevier, vol. 74(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sigrist, Fabio & Leuenberger, Nicola, 2023. "Machine learning for corporate default risk: Multi-period prediction, frailty correlation, loan portfolios, and tail probabilities," European Journal of Operational Research, Elsevier, vol. 305(3), pages 1390-1406.
    2. Mark Clintworth & Dimitrios Lyridis & Evangelos Boulougouris, 2023. "Financial risk assessment in shipping: a holistic machine learning based methodology," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 25(1), pages 90-121, March.
    3. Suh, Hyunduk & Walker, Todd B., 2016. "Taking financial frictions to the data," Journal of Economic Dynamics and Control, Elsevier, vol. 64(C), pages 39-65.
    4. Gouriéroux, C. & Monfort, A. & Renne, J.P., 2014. "Pricing default events: Surprise, exogeneity and contagion," Journal of Econometrics, Elsevier, vol. 182(2), pages 397-411.
    5. Zhang, Xuan & Ouyang, Ruolan & Liu, Ding & Xu, Liao, 2020. "Determinants of corporate default risk in China: The role of financial constraints," Economic Modelling, Elsevier, vol. 92(C), pages 87-98.
    6. Sim, Jaehun & Kim, Chae-Soo, 2019. "The value of renewable energy research and development investments with default consideration," Renewable Energy, Elsevier, vol. 143(C), pages 530-539.
    7. Wan†Chien Chiu & Juan Ignacio Peña & Chih†Wei Wang, 2015. "Measuring Systemic Risk: Common Factor Exposures and Tail Dependence Effects," European Financial Management, European Financial Management Association, vol. 21(5), pages 833-866, November.
    8. Nguyen, Ha, 2023. "An empirical application of Particle Markov Chain Monte Carlo to frailty correlated default models," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 103-121.
    9. Jose Giancarlo Gasha & Mr. Andre O Santos & Mr. Jorge A Chan-Lau & Mr. Carlos I. Medeiros & Mr. Marcos R Souto & Christian Capuano, 2009. "Recent Advances in Credit Risk Modeling," IMF Working Papers 2009/162, International Monetary Fund.
    10. Haipeng Xing & Yang Yu, 2018. "Firm’s Credit Risk in the Presence of Market Structural Breaks," Risks, MDPI, vol. 6(4), pages 1-16, December.
    11. Vo, D.H. & Pham, B.V.-N. & Pham, T.V.-T. & McAleer, M.J., 2019. "Corporate Financial Distress of Industry Level Listings in an Emerging Market," Econometric Institute Research Papers EI2019-15, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    12. Andrene Senior & Sherene A. Bailey, 2017. "Estimación y pronóstico del riesgo de incumplimiento: evidencias para Jamaica," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(1), pages 141-174, enero-jun.
    13. David E Allen & Robert Powell, 2012. "The fluctuating default risk of Australian banks," Australian Journal of Management, Australian School of Business, vol. 37(2), pages 297-325, August.
    14. Winsen, Joseph K., 2010. "An overview of project finance binomial loan valuation," Review of Financial Economics, Elsevier, vol. 19(2), pages 84-89, April.
    15. Jung, Alexander & Uhlig, Harald, 2019. "Monetary policy shocks and the health of banks," Working Paper Series 2303, European Central Bank.
    16. Kimie Harada & Takatoshi Ito & Shuhei Takahashi, 2010. "Is the Distance to Default a Good Measure in Predicting Bank Failures? Case Studies," NBER Working Papers 16182, National Bureau of Economic Research, Inc.
    17. Krüger, Steffen & Oehme, Toni & Rösch, Daniel & Scheule, Harald, 2018. "A copula sample selection model for predicting multi-year LGDs and Lifetime Expected Losses," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 246-262.
    18. Alain Monfort & Jean-Paul Renne, 2013. "Default, Liquidity, and Crises: an Econometric Framework," Journal of Financial Econometrics, Oxford University Press, vol. 11(2), pages 221-262, March.
    19. Jin, Xisong & Nadal De Simone, Francisco de A., 2014. "Banking systemic vulnerabilities: A tail-risk dynamic CIMDO approach," Journal of Financial Stability, Elsevier, vol. 14(C), pages 81-101.
    20. Harada, Kimie & Ito, Takatoshi, 2011. "Did mergers help Japanese mega-banks avoid failure? Analysis of the distance to default of banks," Journal of the Japanese and International Economies, Elsevier, vol. 25(1), pages 1-22, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:oaefxx:v:5:y:2017:i:1:p:1326217. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/OAEF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.