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, 2020

45 Pages Posted: 21 Mar 2020

See all articles by Nafisa Zabeen Ovi

Nafisa Zabeen Ovi

Monash Business School

Sudipta Bose

Discipline of Accounting and Finance, Newcastle Business School, University of Newcastle Australia

Abey Gunasekarage

Monash University; Monash University

Syed Shams

University of Southern Queensland

Date Written: February 26, 2020

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 2,847 banking firm–year observations. We find that ASEAN banks react anticyclically in adjusting their capital buffer levels and credit risk. We also find that revenue diversification of these banks help reduce 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 banks.

Keywords: Basel III Accord, Business Cycle, Capital Buffer, Credit Risk, Revenue Diversification

JEL Classification: G21

Suggested Citation

Ovi, Nafisa Zabeen and Bose, Sudipta and Gunasekarage, Abeyratna and Shams, Syed, Do the Business Cycle and Revenue Diversification Matter for Banks’ Capital Buffer and Credit Risk: Evidence from ASEAN Banks (February 26, 2020). Journal of Contemporary Accounting and Economics, 2020, Available at SSRN: https://ssrn.com/abstract=3544450 or http://dx.doi.org/10.2139/ssrn.3544450

Nafisa Zabeen Ovi

Monash Business School ( email )

Wellington Road
Clayton, Victoria 3168
Australia
0351226672 (Phone)

Sudipta Bose (Contact Author)

Discipline of Accounting and Finance, Newcastle Business School, University of Newcastle Australia ( email )

Sydney
Australia

HOME PAGE: http://www.newcastle.edu.au/profile/sudipta-bose

Abeyratna Gunasekarage

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Syed Shams

University of Southern Queensland ( email )

Sprinfield
Springfield
Springfield, Queensland 4300
Australia
+61734704551 (Phone)

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