Malaysian bank capital and risk profiles: Causality tests
Document Type
Article
Publication Date
1-1-2008
Abstract
The structural relationships among bank capital and risk taking are empirically examined by utilising unit root tests and Granger causality tests using the time series data. The Granger causality test results are not very robust with respect to different types of banking institutions, risk variables (NPL and RWA) and time period. With merchant banks and finance companies aggregate data, there appears to be an absence of a Granger causality effect in the Malaysian banking sector. The evidence for Granger causality running from capital to risk or risk to capital appears to be statistically significant when the test is performed using the commercial bank aggregate data. Our results also show that there is no strong indication that using non-performing loans implies likelihood of finding a significant relationship. Finally, the evidence of lead-lag relationship between capital and risk is generally weak before the1997-98 banking crisis.
Keywords
Bank risk, Capital and earnings, Capital ratios, Risk index, Risk-based capital
Divisions
Faculty_of_Business_and_Accountancy
Publication Title
Asian Journal of Business and Accounting
Volume
20
Issue
4
Publisher
Faculty of Business and Accountancy, University of Malaya