The effects of capital on bank lending in  large EU banks – the role of procyclicality, income smoothing, regulations and supervision.

• Małgorzata Olszak 
• Mateusz Pipień
• Sylwia Roszkowska 
• Iwona Kowalska 

This paper aims to find out what  the impact is of bank capital ratios on loan supply in the EU and what factors explain the potential diversity of this impact. Applying the Blundell and Bond (1998) two step GMM estimator, we show that, in the EU context, the role of capital ratio for loan growth is stronger than previous literature has found for other countries. Our study sheds some light on whether procyclicality of loan loss provisions and income smoothing with loan loss provisions contribute to procyclical impact of capital ratio on loan growth. We document that loan growth of banks that have more procyclical loan loss provisions and that engage less in income smoothing is more sensitive to capital ratios. This sensitivity is slightly increased in this sample of banks during contractions. Moreover, more restrictive regulations and more stringent official supervision reduce the magnitude of the effect of capital ratio on bank lending. Taken together, our results suggest that capital ratios are an important determinant of lending in large EU banks.

Keywords: loan supply, capital crunch, procyclicality of  loan loss provisions, income smoothing, bank regulation, bank supervision

JEL Classification: E32, G21, G28, G32

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The analytical framework for identifying and benchmarking systemically important financial institutions in Europe

• Renata Karkowska

The aim of this article is to identify systemically important banks on a European scale, in accordance with the criteria proposed by the supervisory authorities. In this study we discuss the analytical framework for identifying and benchmarking systemically important financial institutions. An attempt to define systemically important institutions is specified their characteristics under the existing and proposed regulations. In a selected group of the largest banks in Europe the following indicators ie.: leverage, liquidity, capital ratio, asset quality and profitability are analyzed as a source of systemic risk. These figures will be confronted with the average value obtained in the whole group of commercial banks in Europe. It should help finding the answer to the question, whether the size of the institution generates higher systemic risk? The survey will be conducted on the basis of the financial statements of commercial banks in 2007 and 2010 with the available statistical tools, which should reveal the variability of risk indicators over time. We find that the largest European banks were characterized by relative safety and without excessive risk in their activities. Therefore, a fundamental feature of increased regulatory limiting systemic risk should understand the nature and sources of instability, and mobilizing financial institutions (large and small) to change their risk profile and business models in a way that reduces the instability of the financial system globally.

JEL classification: C1, F36, F65, G21, G32, G33

Keywords: banking, Systematically Important Financial Institutions, SIFI, systemic risk, liquidity, leverage, profitability

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 What drives heterogeneity of procyclicality of loan loss provisions  in the EU?

• Małgorzata Olszak 
• Mateusz Pipień
• Iwona Kowalska 
• Sylwia Roszkowska 

Using the two step system GMM Blundell and Bond estimator this paper documents a large cross-bank and cross-country variation in the relationship between loan loss provisions (LLP) and the business cycle and explores bank management specific, bank-activity specific and country specific (institutional and regulatory) features that explain this diversity in the European Union. Our results indicate that LLP in large, publicly traded and commercial banks, as well as in banks reporting consolidated statements, are more procyclical. Better investor protection and more restrictive bank capital regulations reduce the procyclicality of LLP. We do not find support for the view that better quality of market monitoring mitigates the sensitivity of LLP to business cycle. Our findings clearly indicate the empirical importance of income smoothing, capital management and credit risk management for decreased procyclicality of LLP. 

JEL Classification: E32, E44, G21

Keywords: loan loss provisions, procyclicality, income smoothing, investor protection, bank regulation, bank supervision 

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The internationalization of Polish firms: an empirical investigation of the M-P relationship 

• Grzegorz Karasiewicz
• Jan Nowak

The purpose of this paper was to determine the nature of the relationship between multinationality and performance (M-P relationship) among Polish companies. It is based on a sample of over 300 Polish companies listed on Warsaw Stock Exchange, studied over two years (625 observations were used for statistical processing). Multiple regression and t-statistic analyses were applied to test three hypotheses. The dependent variable was company performance and the independent variable was the degree of company internationalization. A number of control variables were also incorporated in the regression models. The statistically significant results of the multiple regression analyses show that Polish companies experience a negative linear relationship between their degree of internationalization and performance for two variants of the dependent variable, and a non-linear, U-shaped relationship for one dependent variable. The results also show that companies operating on international markets achieve lower market-valuation results than their domestic counterparts, and companies with lower levels of multinationality perform better than those with higher levels of multinationality.

JEL classification: M160, L250, F230, L210
 

Keywords: international business, company internationalization, company performance, emerging markets, Poland

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A foreigner or a Pole – which employee to choose? 

• Alicja Dobrzyńska

The work presents the results of the preliminary research on the employment of foreigners’ that were conducted among Polish banking institutions being the international corporations with a global reach. The initial results of the analysis shows the potential impact that specific employment policies exert on personal attitudes of foreign executives and operations of the companies in which they are employed. The analysis described in this work identifies the most important elements which hinder the development of those banks whose employment policies are based on the assumption that hiring foreigners is more beneficial than taking on local managers regardless of their familiarity with Polish market mechanisms. The qualitative research that were conducted in the form of the scenario-based interviews, were carried out with both, a group of managers (mainly heads of HR departments and senior executives) cooperating with the foreigners on everyday basis, and the foreigners themselves. The preliminary studies have revealed a number of trends and phenomenon that were described within this work.

JEL classification: F22, J33, J31, J24, J41, M51

Keywords: foreigners, employment, banking, labour

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Competition in commercial banks in Poland – analysis of Panzar-Rosse H-statistics

• Filip Świtała 
• Małgorzata Olszak
• Iwona Kowalska

This paper aims to find out how intense is the competition in Polish commercial banks loan market. Using Panzar – Rosse H-statistics and applying several estimation techniques (GLS, one-step GMM and two-step GMM) we find that this intensity is sensitive to  the estimator applied. Upon analysis of results, one can conclude that competition evolves differently across years in Poland. In some years, competition was relatively high, as the H-statistics reached the level of 0.75, which is relatively close to perfect competition. In other years it gradually decreased reaching its bottom line in 2010, and took upward trend in 2011 and 2012. Generally, the values of our competitive environment measure indicate at monopolistic competition in Poland.

JEL classification: G21, G28, L1, L16

Keywords: competition intensity, marginal costs, contestabily, banking industry

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