Ho Thanh Tung

Department of Management and Economics,

Tomas Bata University in Zlin,

Czech Republic

Department of Finance and Banking, Ton Duc Thang University,

Vietnam

hothanhtung@tdtu.edu.vn

How do banks implement the capital regulation requirement?

Jaroslav Belás

Department of Management and Economics, 

Tomas Bata University in Zlin,

Czech Republic

belas@fame.utb.cz

Tatyana Baideldinova

Department of Law,

Al-Farabi Kazakh National University

Kazakhstan

tatyanabaideldinova@gmail.com

Abstract. This paper studies the capital regulation implementation by commercial banks. Specifically, the authors examine how commercial banks achieve the required capital regulation requirements in the context of the Basel regulation frameworks and whether this compliance promotes banks’ efficiency. The authors use partial adjustment models to analyse the banks’ quarterly financial statement releases in both pre- and post-regulation periods. On average, the empirical evidence shows that the commercial banks pursued credit growth at a higher priority than capital regulation requirements. Retained earnings and risk-weighted assets are permutations to account for the bulk of both higher risk-weighted capital ratio and capital-to-total-assets ratio, while the shares’ issuance played a lesser role. In the post-regulation period, the banks adjusted to the risk-weighted capital target faster than in the pre-regulation period. Adjustment to the capital-on-total-assets ratio was slower. The authors find that the manner of the adjustment by these commercial banks to the capital target led to a loss in efficiency. The result implies the need to tighten the capital regulation implementation and improve risk-weighted assets management.

Received: January, 2018

1st Revision: April, 2018

Accepted: June, 2018

DOI: 10.14254/2071-

8330.2018/11-3/14

JEL Classification: D24, E51, G21, G28

Keywords: bank regulation, capital regulation, Basel regulation, bank efficiency, adjustment speed, Vietnamese commercial banks