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
Date Written: March 2004
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
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