Interconnection between bank capitalization and macroeconomic stability in the countries of South-West Asia

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The paper aims to define the specifics of the mutual interconnection between bank capitalization and indicators of macroeconomic stability. This is achieved by the following methods: grouping, analysis and synthesis, analysis of descriptive statistics, and canonical correlation analysis. The study was carried out based on eight bank capitalization indicators and five macroeconomic stability indicators in seventeen South-West Asian countries from 2010 to 2020. The information base of the research is the dataset from the World Bank. The selected list of indicators is determined by the availability of statistical information for the countries participating in the study. It was found that there is a close canonical correlation between the level of bank capitalization and the macroeconomic stability of the countries under investigation – 0.97 (2010) and 0.99 (2020). The variation of the investigated indicators of macroeconomic stability (68.95% (2010) and 70.64% (2020)) is determined by the change in bank capitalization indicators. On the other hand, the difference in macroeconomic stability indicators of countries by 48.66% (2010) and 42.79% (2020) is due to changes in bank capitalization indicators. Four indicators exert the most significant favorable influence on the level of bank capitalization: Bank return on assets – 0.303 (2010) and 13.033 (2020), Bank return on equity – 0.446 (2010) and 13.387 (2020), Bank regulatory capital to risk-weighted assets – 0.812 (2010), and Bank deposits to GDP – 1.580 (2020). The macroeconomic stability of countries is determined by two indicators: GNI – 3.311 (2010) and 3.461 (2020); GDP – 4.748 (2010) and 4.672 (2020).

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    • Figure 1. Diagram of the range of bank capitalization variables and macroeconomic stability variables
    • Figure 2. Scatter diagram of bank capitalization variables (left set) and macroeconomic stability variables (right set) in 2010 and 2020
    • Table 1. Array of input data
    • Table 2. Results of checking compliance with the normal law of the distribution of variables of bank capitalization and macroeconomic stability based on the Shapiro-Wilk test
    • Table 3. Descriptive statistics
    • Table 4. Results of the correlation analysis for the studied groups of variables
    • Table 5. Canonical analysis summary
    • Table 6. Resulting values of the Chi-Square coefficients, canonical R2 and p-values (2010 and 2020)
    • Table 7. Structure of factor loadings of variables within Root 1 for groups of variables of bank capitalization and macroeconomic stability in 2010 and 2020
    • Table 8. Canonical weights of variables of bank capitalization and macroeconomic stability within Root 1 in 2010 and 2020
    • Conceptualization
      Nigar Ashurbayli-Huseynova, Yevgeniya Garmidarova
    • Formal Analysis
      Nigar Ashurbayli-Huseynova
    • Funding acquisition
      Nigar Ashurbayli-Huseynova, Yevgeniya Garmidarova
    • Investigation
      Nigar Ashurbayli-Huseynova, Yevgeniya Garmidarova
    • Methodology
      Nigar Ashurbayli-Huseynova
    • Project administration
      Nigar Ashurbayli-Huseynova
    • Supervision
      Nigar Ashurbayli-Huseynova
    • Validation
      Nigar Ashurbayli-Huseynova, Yevgeniya Garmidarova
    • Writing – original draft
      Nigar Ashurbayli-Huseynova, Yevgeniya Garmidarova
    • Writing – review & editing
      Nigar Ashurbayli-Huseynova
    • Data curation
      Yevgeniya Garmidarova
    • Resources
      Yevgeniya Garmidarova
    • Software
      Yevgeniya Garmidarova
    • Visualization
      Yevgeniya Garmidarova