Does business cycle heterogeneously impact on banks’ capital buffers, risk and financial stability in BRIC economies?

Syed Moudud-Ul-Huq (), Md. Nazmul Islam, Abdul Gaffar Khan, Md. Rostam Ali, Tanmay Biswas and Brishti Chakrabarty
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Syed Moudud-Ul-Huq: Department of Business Administration, Mawlana Bhashani Science and Technology University, Tangail 1902, Bangladesh
Md. Nazmul Islam: Department of Business Administration, Mawlana Bhashani Science and Technology University, Tangail 1902, Bangladesh
Abdul Gaffar Khan: Department of Business Administration, Mawlana Bhashani Science and Technology University, Tangail 1902, Bangladesh
Md. Rostam Ali: Department of Business Administration, Mawlana Bhashani Science and Technology University, Tangail 1902, Bangladesh
Tanmay Biswas: Department of Business Administration, Mawlana Bhashani Science and Technology University, Tangail 1902, Bangladesh
Brishti Chakrabarty: Department of Business Administration, Mawlana Bhashani Science and Technology University, Tangail 1902, Bangladesh

International Journal of Financial Engineering (IJFE), 2020, vol. 07, issue 04, 1-16

Abstract: This paper revisited the relationship between capital buffers and risk adjustments by showing the impact of the business cycle. Empirically, we used an unbalanced panel dataset from 426 banks of the BRIC countries (i.e., Brazil, Russia, India, and China) for the period 2007–2016. By using the two-step system GMM (2GMM), this study shows the results as: (i) capital buffers of Russia, India, and China behave counter-cyclically while it is pro-cyclical for Brazilian banks over the business cycle; (ii) in BRIC’s economy, credit risk, and bank financial stability is related to business cycle in counter and pro-cyclical fashion, respectively; (iii) capital buffers adjustment speed is the premier in China and India, shining banks accessibility to capital refill is much easier to Brazil and Russia. The adjustment speed is heterogeneous across countries; and (iv) financial stability in apex for the Chinese, Russian, and Indian banks apart from the Brazilian banks.

Keywords: Business cycle; capital buffers; risk adjustments; financial stability; emerging economies (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S2424786320500322

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