How Bank Risk Profiles Affect Their Strength: An Assessment of Banks in the Asia-Pacific Region

Edith Cowan University Accounting, Finance and Economics Working Paper

35 Pages Posted: 9 Apr 2004

See all articles by David E. Allen

David E. Allen

School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN); Department of Finance; School of Business and Law, Edith Cowan University

Mahendra Chandra

School of Finance and Business Economics

Jaime Y.P. Yong

affiliation not provided to SSRN

Date Written: March 2004

Abstract

This paper analyses bank relative riskiness by testing the sensitivity of Asia-Pacific banks to overall market risk, global credit risk shocks, interest rate risk shocks and maturity risk shocks. The banks' risk profiles are categorised according to their capitalisation levels and functional degree of diversification. Our results indicate that highly capitalised banks yield higher average stock returns whilst functionally diversified banks have less volatile returns. Generally, banks that adopt capital adequacy guidelines and hold higher capital levels have greater protection from these risks. Functionally diversified banks are also more strongly positioned against system-wide shocks to the banking sector.

Keywords: Asia Pacific bank risk, market risk, credit risk, capitalisation, functional diversification

JEL Classification: F34, G12, G21

Suggested Citation

Allen, David Edmund and Chandra, Mahendra and Yong, Jaime Y.P., How Bank Risk Profiles Affect Their Strength: An Assessment of Banks in the Asia-Pacific Region (March 2004). Edith Cowan University Accounting, Finance and Economics Working Paper. Available at SSRN: https://ssrn.com/abstract=524584 or http://dx.doi.org/10.2139/ssrn.524584

David Edmund Allen (Contact Author)

School of Mathematics and Statistics, The University of Sydney ( email )

School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia

HOME PAGE: http://www.maths.usyd.edu.au

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Department of Finance ( email )

Taiwan
Taiwan

School of Business and Law, Edith Cowan University

100 Joondalup Drive
Joondalup, WA 6027
Australia

HOME PAGE: http://www.dallenwapty.com

Mahendra Chandra

School of Finance and Business Economics ( email )

100 Joondalup Drive
Joondalup, WA 6027
Australia

Jaime Y.P. Yong

affiliation not provided to SSRN

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