Bank Risk Exposures in the East Asian Region

Alireza Tamadonnejad, Aisyah Abdul-Rahman, Mariani Abdul-Majid, Mansor Jusoh

Abstract


ABSTRACT

Risk management is a pivotal factor for managing financial institutions. Efficient and sustainable banking activity requires managers to take all sources of instability into account and to adopt strategies against risks. The objective of the present paper is to investigate the sources of bank risks with a straightforward and comprehensive risk measurement for the East Asian region. The Z-risk index and a three-factor Capital Asset Pricing Model (CAPM) are adopted to estimate the probability of insolvency, systematic bank risks and unsystematic bank risks. The results demonstrate that banks in East Asian countries are exposed to a variety of risk exposures. Also, the findings show that banks with lower unsystematic risks do not necessarily have lower insolvency risks, indicating that the sources of insolvency risk are complicated and need further research. Finally, a regional cooperation strategy among banks is suggested so that exchange rate and interest rate risks can be reduced.

Keywords: East Asian banks; insolvency risk; three-factor CAPM; stock market; debt market; foreign exchange market

ABSTRAK

Pengurusan risko merupakan faktor penting bagi pengurusan institusi kewangan. Institusi perbankan yang efisyen dan mampan memerlukan pengurus mengambilkira semua sumber yang menyumbang kepada ketidakstabilan ekonomi. Di samping itu, kecekapan dan kelestarian bank juga bergantung kepada sejauhmana bank melaksanakan strategi untuk mengurangkan risiko. Objektif kajian ini adalah untuk melihat sumber-sumber risiko bank melalui pengukuran yang mudah dan komprehensif bagi wilayah Asia Timur. Khususnya, kajian ini menggunakan keadah indek risiko-Z dan Model Penetapan Harga Aset Modal (CAPM) tiga faktor (CAPM) bagi menganggar kebarangkalian bank untuk menjadi tidak solven serta risiko sistematik dan tidak sistematik yang dihadapi oleh bank. Hasil kajian menunjukkan bahawa institusi perbankan di wilayah Asia Timur terdedah kepada pelbagai jenis risiko. Hasil kajian juga menunjukkan bahawa bank yang mempunyai tahap risiko tidak sistematik yang rendah tidak semestinya mempunyai tahap risiko tidak solven yang rendah, seterusnya menggambarkan bahawa punca kepada risiko tidak solven adalah canggih dan rumit serta memerlukan kajian lanjut. Di samping itu, kajian ini menyarankan strategi kerjasama bank di peringkat serantau agar pendedahan risiko terhadap turun-naik kadar tukaran wang asing dan kadar faedah dapat dikurangkan.

Kata kunci: Bank di wilayah Asia timur; risiko bank tidak solven; CAPM tiga-faktor; pasaran saham; pasaran hutang; pasaran tukaran asing


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