Do the business cycle and revenue diversification matter for banks' capital buffer and credit risk: Evidence from ASEAN banks

Article

Ovi, Nafisa, Bose, Sudipta, Gunasekarage, Abeyratna and Shams, Syed. 2020. "Do the business cycle and revenue diversification matter for banks' capital buffer and credit risk: Evidence from ASEAN banks." Journal of Contemporary Accounting and Economics. 16 (1), pp. 1-19. https://doi.org/10.1016/j.jcae.2020.100186
Article Title

Do the business cycle and revenue diversification matter for banks' capital buffer and credit risk: Evidence from ASEAN banks

ERA Journal ID18570
Article CategoryArticle
AuthorsOvi, Nafisa (Author), Bose, Sudipta (Author), Gunasekarage, Abeyratna (Author) and Shams, Syed (Author)
Journal TitleJournal of Contemporary Accounting and Economics
Journal Citation16 (1), pp. 1-19
Article Number100186
Number of Pages19
Year2020
PublisherElsevier
Place of PublicationUnited Kingdom
ISSN1815-5669
Digital Object Identifier (DOI)https://doi.org/10.1016/j.jcae.2020.100186
Web Address (URL)https://www.sciencedirect.com/science/article/pii/S1815566920300047AAAAA:P0k2ozG3pcZfwgRIXPGYXiAxKZHp8-OadZDXxZwB456QyePNfEOoQml5nIF4caaTQqyHTzcXCac#!
Abstract

We examine the association of the business cycle and revenue diversification with the banks’ capital buffer and credit risk for a sample of banks from the Association of Southeast Asian Nations (ASEAN) region from 1998 to 2018, using 2847 banking firm–year observations. We find that ASEAN region banks react anticyclically in adjusting their capital buffer levels and credit risk. We find revenue diversification benefits and that banks, through revenue diversification, can reduce their credit risk while achieving capital savings when confronting economic downturns. Our results offer support for the Basel III accord. However, the relations revealed are somewhat moderated by the regulatory quality, competition, and phase of the business cycle encountered by ASEAN region banks.

KeywordsBasel III Accord; Business cycle; Capital buffer; Credit risk; Revenue diversification
ANZSRC Field of Research 2020350202. Finance
Byline AffiliationsMonash University
University of Newcastle
School of Commerce
Institution of OriginUniversity of Southern Queensland
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