Basel III impact on asset quality, profitability, liquidity and stability in emerging markets: a triple-difference analysis

Impact of Basel III Reforms on Financial Performance and Stability of the Banking Sector in Pakistan

This study examines the impact of Basel III banking reforms on the financial performance and stability of the banking sector in Pakistan. The study focuses on key Basel III regulatory indicators, including the Capital Adequacy Ratio and Leverage Ratio, and evaluates their association with financial performance and stability indicators such as Return on Equity, Return on Assets, Earnings per Share, Non-Performing Loans and Z-Score. A quantitative research approach is adopted using secondary panel data from selected commercial banks operating in Pakistan. The data are analysed using descriptive statistics, correlation analysis, fixed- and random-effect models, and the Hausman specification test. The fixed effect model indicates that bank-specific characteristics significantly influence the relationship between Basel III reforms and banking outcomes. The findings suggest that Basel III reforms have a meaningful role in strengthening capital adequacy, improving risk management and supporting banking sector stability, although their effect on profitability is mixed. The study provides useful implications for regulators, policymakers and banking institutions in Pakistan. References Acosta-Smith, J., Grill, M., & Lang, J. H. (2024). The leverage ratio, risk-taking, and Bank stability. Journal of Financial Stability, 74, 100833. https://doi.org/10.1016/j.jfs.2020.100833 Admati, A. R., DeMarzo, P. M., Hellwig, M. F., & Pfleiderer, P. C. (2013). Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Socially Expensive. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2349739 Ahmed, S., Akhtar, M. F., & Usman, M. (2018). Impact of Bank-specific and macroeconomic factors on the profitability of commercial Banks in Pakistan. Journal of Accounting, Finance and Auditing Studies, 4(2), 1–26. 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Does Liquidity Risk Impact Asset Quality and Financial Stability? Evidence from Uzbekistan Commercial Banks

This study investigates the impact of liquidity risk on asset quality and financial stability in Uzbekistan’s commercial banking sector. Using quarterly time-series data from 2016 to 2024, the study employs Ordinary Least Squares (OLS) regression with quadratic specifications to capture potential non-linear effects of liquidity. Two models are estimated to examine (i) the relationship between liquidity risk and asset quality, and (ii) the impact of liquidity risk on financial stability, proxied by net profit. The results indicate that liquidity risk does not have a statistically significant effect on asset quality, suggesting that credit performance is primarily driven by structural and macroeconomic factors rather than liquidity conditions. In contrast, the financial stability model demonstrates high explanatory power (R2 = 0.883), although individual coefficients are statistically insignificant due to severe multicollinearity among banking sector variables. The findings do not support the conventional liquidity–profitability trade-off hypothesis, as no evidence of a linear or non-linear relationship between liquidity and profitability is observed. Regulatory capital emerges as the most influential variable, indicating the importance of capital strength in supporting banking stability. This study contributes to the literature by providing novel empirical evidence from a transition economy, highlighting the limitations of isolating liquidity effects in rapidly expanding banking systems. The results suggest that in reform-oriented financial environments, banking stability is shaped more by structural growth and capital adequacy than by liquidity trade-offs, offering important implications for macroprudential policy design.

Impact of Prudential Banking Regulations on Bank Profitability and Liquidity: Evidence from Ethiopian Commercial Banks

This study investigates how prudential regulatory instruments introduced by the National Bank of Ethiopia (NBE) influence the profitability and liquidity of private commercial banks in Ethiopia. Using balanced panel data from seven private commercial banks covering the period 2014–2023, the study employs fixed-effects and random-effects regression models to examine the relationship between regulatory measures—including legal reserve requirements, capital adequacy, capital requirements, equity investment limitations, and NBE bill purchase requirements—and bank performance. The findings indicate that prudential regulations affect different dimensions of bank performance in varying ways. Specifically, the legal reserve requirement has a positive and statistically significant effect on bank liquidity, suggesting that higher reserve holdings improve banks’ ability to meet short-term obligations. However, it is associated with a weak negative effect on profitability, highlighting the potential trade-off between maintaining liquidity and generating income. The results also show that higher capital adequacy significantly reduces return on equity, indicating that stronger capital buffers may limit shareholders’ returns. Among bank-specific factors, managerial efficiency is found to be an important driver of profitability, whereas greater dependence on deposit funding is associated with lower profitability. In contrast, capital requirements, equity investment limitations, and NBE bill purchase requirements do not exhibit statistically significant short-run effects on bank profitability or liquidity. Overall, the findings suggest that Ethiopia’s prudential regulatory framework has contributed more strongly to strengthening liquidity and financial stability than to improving bank profitability. The study underscores the need for regulators to maintain an appropriate balance between financial stability objectives and banks’ operational efficiency and profitability in emerging banking systems.

Financial regulations and bank productivity: lessons from BRICS and European banking markets

This study examines the impact of banking regulations on productivity in BRICS and European banks, comparing regulatory frameworks to identify an optimal balance between financial stability and economic efficiency. Analysis includes the Basel Accord's three pillars – capital requirements, supervisory review and market discipline – along with deposit insurance and bank activity restrictions. The study employs two panel datasets, totalling to 5,794 institutions across 37 nations from 2005 to 2023. The dynamic sequential Malmquist-Luenberger productivity index (DSMLPI) measures productivity changes, decomposing them into efficiency and technical progress. A two-step system generalized method of moments estimation models regulations as a key factor influencing total factor productivity (TFP) and its components. Findings reveal that stringent capital requirements enhance TFP in both regions but hinder frontier expansion in BRICS. Regulatory supervision improves TFP in Europe by enhancing transparency and risk management but reduces TFP in BRICS due to political influence and inefficiencies. Market discipline fosters efficiency in Europe but fails in BRICS, enabling rent-seeking behaviour. Activity restrictions improve TFP in BRICS by stabilizing banking operations but limit efficiency in Europe by restricting diversification. Deposit insurance has no significant impact on BRICS productivity. While existing research focuses on regulations' impact on market structure and stability, their role in productivity remains unexplored. This study utilizes the fifth edition of the World Bank's “Bank Regulation and Supervision” survey and employs the DSMLPI approach with a dynamic three-stage production model. This study helps policymakers balance financial stability with growth by focusing on productivity, which reflects long-term value creation and competitiveness.

Influence Structure Capital and Risk Credit to Profitability in Banking Companies Listed on the Indonesia Stock Exchange (IDX) Period (2019-2023)

Impact of Bank Mergers on Financial Performance, Asset Quality, and Efficiency in India

Abstract: This study examines the impact of bank mergers on financial performance, asset quality and operational efficiency in India, with a focus on post-liberalization public sector consolidations. Using secondary data from annual reports, Reserve Bank of India publications and financial databases, the study uses a descriptive and analytical approach to look at pre- and post-merger tendencies of the top 10 banks. The findings demonstrate that mergers significantly increased asset bases, deposits, advances and capital adequacy, improving systemic resilience and market presence. Over the medium to long term, workforce optimization, economies of scale and technology integration improved operational efficiency while NPAs stabilized and profitability recovered. However, in the short term, inherited stressed assets and integration costs put pressure on profitability and asset quality. Unlike previous studies that focused on isolated indicators, this study uses an integrated framework that simultaneously evaluates asset quality, capital strength and operational efficiency to provide new empirical insights into policy-driven consolidations and highlight their role in improving long-term financial stability and competitiveness in India.