DO COMPETITION AND MARKET STRUCTURE MATTER FOR SENSITIVITY OF BANK PROFITABILITY TO BUSINESS CYCLE?

• Małgorzata Olszak
• Iwona Kowalska

The aim of this paper is to determine what is the effect of competition on cyclicality of bank profitability. To answer this question we apply robust fixed effects estimator to unbalanced panel of individual bank level data covering the period of 2004-2015 in over 100 countries. In our study we control for market power and market structure, as proxies for competitive environment and for net interest margin (NIM), return on assets (ROA) and return on equity (ROE) to proxy bank profitability. Our results show that decreased competition is related with an increase in procyclicality of net interest margin. This effect, however, does not hold in high-income countries. As for the ROA and ROE we find comparable results, but the effect is not always statistically significant. Market structure does affect profitability in a statistically signficant way, but seems to be important for procyclicality of ROA and ROE. We also find that the link between competition and procyclicality of profitability is non-linear and inversely U-shaped. Thus, both high and low competition intensity may reduce procyclicality of profitability.

Keywords: profitability, procyclicality, competition, market structure

JEL Classification: E32, G21, G28, G32

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Analiza dynamiki zjawisk: stopa wzrostu prosta i handlowa

• Mariusz Szałański

Analiza dynamiki zjawisk opisuje teorię indeksów (wskaźników) oraz przyrostów względnych i absolutnych. Korzystając z dorobku matematyki finansowej postaram się wykazać w artykule, że możliwe jest rozszerzenie analizy przyrostów względnych o podział na dwie miary: przyrost względny (stopę wzrostu) prosty i dyskontowy (handlowy). Powyższe rozróżnienie stóp jest znane i powszechnie wykorzystywane w arytmetyce gospodarczej lub matematyce finansowej. Polega na naliczaniu stopy procentowej od wartości zmiennej początkowej (bazowej) lub końcowej (badanej). Opisano proste zastosowania nowej miary na przykładach ekonomicznych oraz pokazano jej zastosowania na rynkach finansowych. Artykuł może być przyczynkiem do rozszerzenia zagadnień znanych w matematyce finansowej na statystykę.

Słowa kluczowe: analiza dynamiki zjawisk, indeks prosty, stopa wzrostu, The Index
Numbers

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Size of banks as a factor which impacts the efficiency of the bank lending channel

• Filip Świtała
• Iwona Kowalska
• Karolina Malajkat

In most economies banking sector plays the major role in the financial system. Therefore, it is of great importance to analyse and understand the mechanism of transmission of monetary policy and its impact on the banking sector. One of possible repercussions of changing the level of official interest rates is an ability to influence the size of bank lending, by means of the bank lending channel. The key aspect our research is a throughout understanding of functioning of the bank lending channel, with the main goal of this study being an examination of efficiency of monetary policy transmission through bank lending channel depending on the size of banks in the sector. This paper examines the abovementioned relation using annual data from 1995-2015 by 1709 commercial and cooperative banks from 27 EU countries and analyzing them in various econometric models. The results indicate that there is a positive impact of the bank's size on loan growth (defined as the bank size increases, the impact of changes in interest rates in the bank’s lending policy is getting smaller), however, interaction between the variables size and the interest rate, was proved to be insignificant (in the group of all analysed banks, as well as in commercial and cooperative banks separately).

Keywords: loan supply, capital ratio, monetary policy, bank lending channel, bank assets

JEL Classification: E44, E51, E52, E58, G21

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INSURANCE COMPANIES – WHAT DETERMINATES THEIR CREDIT RATINGS

• Patrycja Chodnicka-Jaworska
• Piotr Jaworski

The aim of the paper has been to analyse factors’ influence on insurance companies’ credit ratings. It has been made a literature review, and as a result there have been put the following hypotheses. The first one is: Insurance companies’ credit ratings are determined by capital adequacy, assets quality, management quality, efficiency and liquidity factors. The second one states: Countries’ credit ratings influence statistically significantly on insurance notes. To the
analysis there have been used long-term issuer credit ratings proposed by small and big credit rating agencies. To verify the presented hypotheses there have been used ordered logit panel data models. The research has been prepared on quarterly data for all assessed insurance companies from all of the world. Data have been collected from Thomson Reuters Database from 1995 to 2016.

Keywords: credit rating, insurance companies, panel data models

JEL Classification: C23, G22, G24

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Impact of credit rating agencies on European Banking stock prices: Is the recognition of credit rating agency important?

• Patrycja Chodnicka-Jaworska

The basic goal of the article was to analyse the reaction of rates of return of banks’ shares to the changes of their credit ratings. There first hypothesis is as follows: Rating events convey new information and lead to statistically significant abnormal reactions. The second one is: The rate of return reaction is stronger on the decrease than increase of banks’ credit ratings. The last hypothesis that has been taken into considerations is: The changes of credit ratings proposed by smaller CRAs influence is ineffective on the rate of returns of banks’ shares. For verification of these hypothesis daily rates of return and differences between the logarithmized rates of returns are used. As dependent variables long term issuer credit ratings proposed European banks by the recognizable and smaller CRAs form 1980 to 2015 period of time are used. The analysis has been prepared in the subsamples according to: the type of credit rating, the recognizable credit rating agency and political division. The information about the upgrade and downgrade of credit ratings published by the smaller CRAs has insignificant influence on the abnormal returns. Banks in the developing economies reaction is stronger on the positive changes, but rates of return of banks’ shares in the developed countries are more sensitive to the downgrade of credit ratings. The moment of the reaction in particular countries is differentiated.

Keywords: credit rating agency, credit rating, stock price, rates of return.

JEL Classification: G14, G15, G21

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BANKS AND SHAREHOLDERS CREDIT RATINGS – EVIDENCE FROM THE EUROPEAN MARKET

• Patrycja Chodnicka-Jaworska

The aim of this paper is to analyse the factors influencing banks’ credit ratings, taking into consideration shareholders’ credit ratings. A literature review has been prepared, and as a result the following hypotheses have been put: Firstly, banks’ credit ratings are determined by the financial factors measured by CAMEL and macroeconomic determinants. Secondly, countries’ and shareholders’ credit ratings influence banks’ notes statistically significantly. Long-term issuer credit ratings proposed by smaller and bigger credit rating agencies have been used for the analysis. To verify the presented hypotheses ordered logit panel data models have been used. The research has been prepared based on quarterly data for the assessed European banks listed on the stock market. The data collected comes from the Thomson Reuters Database for the period between 1998 and 2016.

Keywords: credit rating, CAMEL, type of ownership, panel data models

JEL Classification: C21, G21, G24, G32

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