From innovation to stability: Evaluating the ripple influence of digital payment systems and capital adequacy ratio on a bank’s Z-score
-
Author(s)Jamileh Ali MustafaLink to ORCID Index: https://orcid.org/0009-0002-0974-3460
-
DOIhttp://dx.doi.org/10.21511/bbs.19(3).2024.07
-
Article InfoVolume 19 2024, Issue #3, pp. 67-79
- 201 Views
-
64 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study investigated the influence of digital payment systems on banks’ stability by exploring their effect on the Z-score of the Jordanian banking sector during the period from 2004 until 2022. It specifically focused on liquidity risks generated from e-payment transactions and how sufficient capital adequacy ratios enhance banking sector stability over both short-term and long-term periods by standing against sudden volatilities yielded from large amounts of transactions executed through digital payment systems. To achieve this objective, the study utilizes time series dual regression analyses of vector autoregression and vector error correction models on E-views 12 to cover the time variation influences of digital payment on the banking sector Z-score. The regression results indicate varied effects between the benefits and risks of digital payment systems on a bank’s Z-score that influence the immediate sector’s stability, indicating that while digital payment systems can initially hold liquidity risks, leading to short-term instability; the strategic implementation of robust capital adequacy ratio stands as a protective buffer by fostering long-term banking sector resilience. The results also suggest future predictions and insights for financial sector legislators and regulators emphasizing the need for monitoring strategies that stimulate continuous innovations in the digital payment infrastructure while constantly ensuring the stability and resilience of the banking sector. Thus, prudent liquidity management and the reinforcement of capital buffers are encouraged to pilot the dual challenges and opportunities that appeared at the stages of the digital payment process, ultimately guiding the sector toward continuous growth and sustainability.
Acknowledgment
The author is grateful to the Middle East University, Amman, Jordan for the financial support granted to cover the publication fee of this research.
- Keywords
-
JEL Classification (Paper profile tab)G21, G23, E42
-
References63
-
Tables7
-
Figures2
-
- Figure 1. Evolution of profitability indicators in the banking sector (2000–2022)
- Figure 2. ADF test result
-
- Table 1. Research metrics
- Table 2. Summary statistics
- Table 3. Correlation matrix
- Table 4. ADF test results
- Table 5. Engle-Granger two-step method results
- Table 6. VAR regression analysis results
- Table 7. VECM regression analysis results
-
- Abiodun, F. R., Christopher, S. R. O., & Muzliu, I. B. (2023). An Analysis of Bank-Level Determinants of Electronic Payment Innovations in Nigerian Deposit Money Banks. International Journal of Research in Interdisciplinary Studies, 1(1), 20-30.
- Akanfe, O., Lawong, D., & Rao, H. R. (2024). Blockchain technology and privacy regulation: Reviewing frictions and synthesizing opportunities. International Journal of Information Management, 76, 102753.
- AlAli, S. M. (2019). Influence of capital adequacy on financial stability indexes a field study in commercial banks in Jordan. Academy of Accounting and Financial Studies Journal, 23(4), 1-10.
- Alam, M. M., & Yusuf, W. S. (2024). The Effect of Bank-Specific and Bank Risk on Bank Stability as Measured by NPL of The Bangladeshi Commercial Bank. Advanced International Journal of Business, Entrepreneurship and SME’s (AIJBES), 6(20).
- Ali, M., & Puah, C. H. (2019). The internal determinants of bank profitability and stability: An insight from banking sector of Pakistan. Management Research Review, 42(1), 49-67.
- Almajali, D., Al-Okaily, M., Al-Daoud, K., Weshah, S., & Shaikh, A. A. (2022). Go cashless! Mobile payment apps acceptance in developing countries: The Jordanian context perspective. Sustainability, 14(20), 13524.
- Al-Okaily, M., Lutfi, A., Alsaad, A., Taamneh, A., & Alsyouf, A. (2020). The determinants of digital payment systems’ acceptance under cultural orientation differences: The case of uncertainty avoidance. Technology in Society, 63, 101367.
- Al-Sabaawi, M. Y. M., Alshaher, A. A., & Alsalem, M. A. (2023). User trends of electronic payment systems adoption in developing countries: an empirical analysis. Journal of Science and Technology Policy Management, 14(2), 246-270.
- Apostolakis, G., & Papadopoulos, A. P. (2019). Financial stability, monetary stability and growth: a PVAR analysis. Open Economies Review, 30, 157-178.
- Barth, J. R., Caprio Jr, G., & Levine, R. (2004). Bank regulation and supervision: what works best? Journal of Financial Intermediation, 13(2), 205-248.
- Bayar, Y., Borozan, D., & Gavriletea, M. D. (2021). Banking sector stability and economic growth in post-transition European Union countries. International Journal of Finance & Economics, 26(1), 949-961.
- Berrospide, J. M., & Edge, R. M. (2010). The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean? International Journal of Central Banking, 6(4), 5-54.
- Bhuiyan, M. R. I., Akter, M. S., & Islam, S. (2024). How does digital payment transform society as a cashless society? An empirical study in the developing economy. Journal of Science and Technology Policy Management.
- Brown, W., Wilson, G., & Johnson, O. (2024). Exploring the Adoption of Digital Payment Systems in Retail.
- Demirgüç-Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), 379-408.
- Diamond, D. W., & Rajan, R. G. (2012). Illiquid banks, financial stability, and interest rate policy. Journal of Political Economy, 120(3), 552-591.
- Dwumfour, R. A. (2017). Explaining banking stability in sub-Saharan Africa. Research in International Business and Finance, 41, 260-279.
- Dzandu, M. D., Hanu, C., & Amegbe, H. (2022). Gamification of mobile money payment for generating customer value in emerging economies: The social impact theory perspective. Technological Forecasting and Social Change, 185, 122049.
- Ernaningsih, I., Smaoui, H., & Temimi, A. (2023). The effect of capitalization on the competition-stability Nexus: Evidence from dual banking systems. Pacific-Basin Finance Journal, 82, 102152.
- Gharaibeh, A. M. O. (2023). The determinants of capital adequacy in the Jordanian banking sector: an autoregressive distributed lag-bound testing approach. International Journal of Financial Studies, 11(2), 75.
- Ghosh, A. R., Ostry, J. D., & Chamon, M. (2016). Two targets, two instruments: Monetary and exchange rate policies in emerging market economies. Journal of International Money and Finance, 60, 172-196.
- Gomber, P., Kauffman, R. J., Parker, C., & Weber, B. W. (2018). On the fintech revolution: Interpreting the forces of innovation, disruption, and transformation in financial services. Journal of Management Information Systems, 35(1), 220-265.
- Gowri, M., & Sekar, M. (2014). Assessing the financial health of select automobile companies in India: A quantitative approach using the Z-Score multi-discriminant financial analysis model. Great Lakes Herald, March, 8(1), 32-45.
- Hameed, K., & Siddiqui, D. A. (2023). Impact of Bank-Specific and Macro Economics Variables on Capital Adequacy Ratio (CAR) in the Private Banks of Pakistan. SSRN.
- Hang, P. T. N., Thai, H. H., & Giang, N. T. T. (2021). The impact of technology investment to liquidity risk of commercial banks in Vietnam. Academy of Strategic Management Journal, 20, 1-10.
- Harkati, R., Alhabshi, S. M., & Kassim, S. (2020). Does capital adequacy ratio influence risk-taking behavior of conventional and Islamic banks differently? Empirical evidence from dual banking system of Malaysia. Journal of Islamic Accounting and Business Research, 11(10), 1989-2015.
- Jameaba, M. (2022). Digitalization, emerging technologies, and financial stability: Challenges and opportunities for the banking industry.
- Jamileh Ali Mustafa. (2020). The Impact of Prudential Regulation on Jordanian Banks Liquidity. International Journal of Business and Economics Research, 9(5), 342-347.
- Japparova, I., & Rupeika-Apoga, R. (2017). Banking business models of the digital future: The case of Latvia. European Research Studies Journal, XX(3A), 846-860.
- Johnson, J. T. (2017). Roadmap for photovoltaic cyber security (Sandia Report No. SAND2017-13262). Sandia National Lab.(SNL-NM), Albuquerque, NM (United States).
- Kasman, S., & Kasman, A. (2015). Bank competition, concentration and financial stability in the Turkish banking industry. Economic Systems, 39(3), 502-517.
- Kasri, R. A., Indrastomo, B. S., Hendranastiti, N. D., & Prasetyo, M. B. (2022). Digital payment and banking stability in emerging economy with dual banking system. Heliyon, 8(11), e11198.
- Kharabsheh, B., & Gharaibeh, O. K. (2022). Determinants of banks’ stability in Jordan. Economies, 10(12), 311.
- Klapper, L., El-Zoghbi, M., & Hess, J. (2016). Achieving the sustainable development goals: The role of financial inclusion. Washington, DC: CGAP.
- Lepetit, L., & Strobel, F. (2013). Bank insolvency risk and time-varying Z-score measures. Journal of International Financial Markets, Institutions and Money, 25, 73-87.
- Mills, D., Wang, K., Malone, B., Ravi, A., Marquardt, J., Chen, C., Badev, A., Brezinski, T., Fahy, L., Liao, K., Kargenian, V., Ellithorpe, M., Ng, W., & Baird, M. (2017). Distributed ledger technology in payments, clearing and settlement (Finance and Economics Discussion Series 2016-095). Washington: Board of Governors of the Federal Reserve System.
- Mohammed, Z., Abbas Ibrahim, U., & Taiwo, A. M. (2022). Effect of payments system innovations on the financial performance of commercial banks in Nigeria. Journal of Service Science and Management, 15(1), 35-53.
- Mustafa, A., & Mumtaz, M. Z. (2022). Examining the Bank-Specific and Macro-Economic Factors that Influence Capital Adequacy in Pakistan. International Journal of Management Research and Emerging Sciences, 12(2).
- Mustafa, J. A., Marei, A., Al-Amarneh, A., & Al-Abbadi, A. (2023). The Role of Fintech Payment Instruments in Improving Financial Inclusion. Information Sciences Letters, 12(6), 2659-2670.
- Ngumi, P. M. (2014). Effect of bank innovations on financial performance of commercial banks in Kenya (Doctoral Thesis).
- Nguyen, L. T. M., Le, D., Vu, K. T., & Tran, T. K. (2023). The role of capital structure management in maintaining the financial stability of hotel firms during the pandemic – A global investigation. International Journal of Hospitality Management, 109, 103366.
- Nguyen, M. S. (2021). Capital adequacy ratio and a bank’s financial stability in Vietnam. Banks and Bank Systems, 16(4), 61.
- Noman, A. H. M., Gee, C. S., & Isa, C. R. (2018). Does bank regulation matter on the relationship between competition and financial stability? Evidence from Southeast Asian countries. Pacific-Basin Finance Journal, 48, 144-161.
- Ombongi, B. (2021). The Effect of Agency and Mobile Banking on Liquidity of Commercial Banks in Kenya (Doctoral Thesis). University of Nairobi.
- Patricia, V., Daud, I., Malini, H., & Syahputri, A. (2023). The influence of financial technology and capital adequacy ratio (CAR) on the financial performance of bank. Enrichment: Journal of Management, 13(5), 2851-2863.
- Raharja, S. U. J., Muhyi, H. A., & Herawaty, T. (2020). Digital Payment as an Enabler for Business Opportunities: A Go-Pay Case Study. Review of Integrative Business and Economics Research, 9, 319-329.
- Rajhi, W., & Hassairi, S. A. (2013). Islamic banks and financial stability: a comparative empirical analysis between MENA and southeast Asian countries. Région et Développement, 37(3), 149-179.
- Risman, A., Mulyana, B., Silvatika, B., & Sulaeman, A. (2021). The effect of digital finance on financial stability. Management Science Letters, 11(7), 1979-1984.
- Roberts, L. (2023). Countermeasures for Preventing Malicious Infiltration on the Information Technology Supply Chain (Doctoral Thesis). Purdue University.
- Sareen, A., & Sharma, S. (2022). Assessing financial distress and predicting stock prices of automotive sector: robustness of Altman Z-score. Vision, 26(1), 11-24.
- Sargolzaei, M., & Safaei Ilkhchi, M. (2022). The Effect of Macroeconomic Shocks on the Liquidity Risk of the Banking System: MS-VAR Approach. Financial Research Journal, 24(4), 528-576.
- Shatat, A. (2011). Empirical study in the security of electronic payment systems. International Journal of Computer Science Issues (IJCSI), 8(4), 393.
- Sivathanu, B. (2019). Adoption of digital payment systems in the era of demonetization in India: An empirical study. Journal of Science and Technology Policy Management, 10(1), 143-171.
- Susanto, S. A., Manek, M. V., Setiawan, R. A., & Mustikasari, F. (2023). Customer Experience in Digital Banking: The Influence of Convenience, Security, and Usefulness on Customer Satisfaction and Customer Loyalty in Indonesia. Devotion: Journal of Research and Community Service, 4(8), 1671-1685.
- Tarkocin, C., & Donduran, M. (2023). Bank Stability and Systemic Risk Measurement: Application of Z-Score Variations to the Turkish Banking Sector. International Journal of Finance & Banking Studies, 12(1), 63-73.
- Taskaro, D. W., & Suhari, E. (2024). The Influence of Digital Payment Implementation on Banking Stability in Indonesia (A Study on Conventional Banks in Indonesia Listed on the Indonesia Stock Exchange). International Journal of Science, Technology & Management, 5(3), 528-533.
- Thaiyalnayaki, M., & Reddy, G. D. (2017). Exploring liquidity risk management in payment SYSTEM: In search of profitability. International Journal of Economic Research, 14, 123-136.
- Thankgod, U. J., Alhassan, Y., & James, E. M. (2019). Effect of electronic payment on financial performance of deposit money banks in Nigeria. Lafia Journal of Economics and Management Sciences, 4(1), 114-114.
- Udin, S., Bujang, I., & Beli, S. R. (2019). Technology effects towards banks’ liquidity risk on Southeast Asian commercial bank. The Business & Management Review, 10(3), 329-335.
- Vu, H., & Dang, N. (2020). Determinants influencing capital adequacy ratio of Vietnamese commercial banks. Accounting, 6(5), 871-878.
- Wadesango, N., & Magaya, B. (2020). The impact of digital banking services on performance of commercial banks. Journal of Management Information and Decision Sciences, 23, 343-353.
- Wang, J. H., Wu, Y. H., Yang, P. Y., & Hsu, H. Y. (2023). Sustainable Innovation and Firm Performance Driven by FinTech Policies: Moderating Effect of Capital Adequacy Ratio. Sustainability, 15(11), 8572.
- Xu, Y., Pinedo, M., & Xue, M. (2017). Operational risk in financial services: A review and new research opportunities. Production and Operations Management, 26(3), 426-445.
-
Waste management policy and employment: the case of France
Environmental Economics Volume 9, 2018 Issue #1 pp. 38-46 Views: 2335 Downloads: 293 TO CITE АНОТАЦІЯThis paper examines whether a causal relationship exists between waste tonnage and employment when the waste collection is entrusted to a private operator in France (i.e. waste management policy by delegation of service). The empirical investigation is based on weekly data for four waste streams for the period from January 2015 to June 2017. Using nonstationary time series techniques including cointegration, VECM (Vector Error Correction Model) and long-run causality test of Toda and Yamamoto (1995) within a bivariate framework, the results demonstrate potential causal negative relationship between waste tonnage and employment. For three waste streams (i.e. household waste, outdoor garbage waste and miscellaneous waste), the results suggest that waste management practices that aim at entrusting the collection and treatment to a private operator (i.e. waste management by delegation of service) are not economically beneficial to society, because this policy does not favor environmental jobs creation. The paper calls for the adoption of other waste management practices to preserve employment in the waste collection sector.
-
The determinants of liquidity risk of commercial banks in Vietnam
Tu T. T. Tran ,
Yen T. Nguyen ,
Thuy T.H. Nguyen ,
Long Tran
doi: http://dx.doi.org/10.21511/bbs.14(1).2019.09
Banks and Bank Systems Volume 14, 2019 Issue #1 pp. 94-110 Views: 2018 Downloads: 1205 TO CITE АНОТАЦІЯThis research identifies factors that explain the liquidity of commercial banks in the Vietnam banking system from 2010 to 2015. Using the OLS regression method for analysis, it was found that:
- the interbank market helps commercial banks improve their liquidity;
- the larger the loan size, the higher the liquidity risk;
- good credit risk management has a positive impact on liquidity risk management; and
- long-term interest rate is negatively related to the liquidity of commercial banks.
The research also makes recommendations on liquidity risk management policies to banks and policy-makers from the Government and the State Bank of Vietnam.
-
The effectiveness of exchange rate channel in Azerbaijan: an empirical analysis
Shahriyar Mukhtarov , Serhat Yüksel 
,
Elvsevar Ibadov ,
Hamid Hamidov
doi: http://dx.doi.org/10.21511/bbs.14(1).2019.10
Banks and Bank Systems Volume 14, 2019 Issue #1 pp. 111-121 Views: 1935 Downloads: 316 TO CITE АНОТАЦІЯThe main purpose of this study is to make an analysis to understand whether the exchange rate channel is effective in Azerbaijan. In this framework, quarterly data between 2001:01 and 2017:02 is examined in this study. Furthermore, VAR method is taken into the consideration in the analysis process. The findings show that exchange rate channel is very important for Azerbaijani economy. In other words, the exchange rate channel is working on the total output and price axis. Hence, it is recommended that necessary actions should be taken by a central bank regarding the effective usage of exchange rate channel to contribute to industrial production and employment.
