Fast and Fair Blind Peer-Reviewed with Hybrid Access Scholar & Practical Journals
Financial industry at the crossroads between current practices and ethical virtues
Exploring the determinants of ethical banks emergence and performance
Ana Kundid Novokmet
Faculty of Economics - University of Split
Recent financial crisis led to a widespread appearance of rethinking (i.e. mainly criticizing) the traditional banking model, and all of a sudden alternative or ethical banking gained a noteworthy attention as one of possible way outs. With reference to that, this paper gives an insight into ethical banking model, to be more precise, its content, worldwide emergence and performance. The data sample of the world’s leading 25 ethical banks from 19 countries with the membership in the Global Alliance for Banking on Values (GABV) in the period 2008-2013 is used in the dynamic panel data analysis, with a goal of estimating the bank-specific features which might explain differences in ethical banks profitability measured with the return on assets. The empirical research reveals that previous profitability, higher equity financing and higher growth of loans, add to ethical bank profitability, while higher growth of deposits reduces it. Furthermore, a noticeable difference in the average values of ethical banks profitability indicators (return on assets as well as return on equity), with reference to a country development level is found out using univariate statistics, One-Way ANOVA and Kruskal-Wallis test, to be more precise. Thus, the institutional theory of ethical banks emergence and performance is adopted and argued by taking into consideration selected country indicators from the World Development Indicators, the Global Financial Development Database and the Global Competitiveness Report. The overall results suggest that contextual properties are relevant for ethical banks emergence and performance.
1. Andrieș, A. M., Cocriș, V., Ursu, S. G. 2012. ‛Determinants of Bank Performance in CEE Countries’, Review of Economic & Business Studies. Vol. 5, No. 2, pp. 165-177.
2. Athanasoglou, P. P., Brissimis, S. N., Delis, M. D. 2005. ‛Bank-Specific, Industry-Specific and Macroeconomic Determinants of Bank Profitability’, Bank of Greece Working Paper, No. 25.
3. Becchetti, L., Garcia, M. M., Trovato, G. 2011. ‛Credit Rationing and Credit View: Empirical Evidence from an Ethical Bank in Italy’, Journal of Money, Credit and Banking. Vol. 43, No. 6, pp. 1217-1245.
4. Benedikter, R. 2011. ‛European Answers to the Financial Crisis: Social Banking and Social Finance’. Available at: http://spice.stanford.edu/docs/european_answers_to_the_financial_crisis_social_banking_and_social_finance/
5. Brissimis, S. N., Delis, M. D., Papanikolaou, N. I. 2008. ‛Exploring the Nexus between Banking Sector Reform and Performance: Evidence from Newly Acceded EU Countries’, Journal of Banking & Finance. Vol. 32, pp. 2674-2683.
6. Carrasco, I. 2006. ‛Ethics and Banking’, International Advances in Economic Research. Vol. 12, pp. 43-50.
7. Detomasi, D. A. 2008. ‛The Political Roots of Corporate Social Responsibility’, Journal of Business Ethics. Vol. 82, No. 4, pp. 807-819.
8. Kundid, A. 2014. ‛Etičko bankarstvo – novi koncept bankarstva’ [Ethical Banking – The New Banking Concept] chapter in the book (ed. Ćurak, M., Kundid, A., Visković, J.) Financije nakon krize: forenzika, etika i održivost [Finances after the Crisis: Forensics, Ethics and Sustainability]. Split: Faculty of Economics, University of Split, pp. 243-264.
9. Kundid, A., Rogošić, A. 2011. ‛Bank Online Reporting: Comparative Advantage, Formalism or Fashion?’, Global Business & Economics Anthology. Vol. 2, No. 2, pp. 500-518.
10. Kundid, A., Škrabić, B., Ercegovac, R. 2011. ‛Determinants of Bank Profitability in Croatia’, Croatian Operational Research Review. Vol. 2, pp. 168-182.
11. Mirzaei, A., Moore, T., Liu, G. 2013. ‛Does Market Structure Matter on Banks’ Profitability and Stability? Emerging vs. Advanced Economies’, Journal of Banking & Finance. Vol. 37, pp. 2920-2937.
12. Pivac, S. 2010. Statističke metode: e-nastavni materijal [Statistical Methods: E-Learning Materials]. Split: Faculty of Economics, University of Split.
13. Relaño, F. 2008. ‛From Sustainable Finance to Ethical Banking’, Transformations in Business & Economics. Vol. 7, No. 3 (15), Supplement C, pp. 123-131.
14. Rogošić, A. 2014. ‛Corporate Social Responsibility Reporting of the Banks in Bosnia and Herzegovina, Croatia and Montenegro’, Theoretical and Applied Economics. Vol. 21, No. 9, pp. 71-82.
15. Roman, A., Tomuleasa, I.-I. 2013. ‛Analysis of Profitability Determinants: Empirical Evidence of Commercial Banks in the New EU Member States’. Proceedings of 14th International Conference of Finance and Banking Financial Regulation and Supervision in the After-Crisis Period (ed. Polouček, S., Stavárek, D.). Karviná: Silesian University, School of Business Administration, Ostrava, Czech Republic, pp. 372-383.
16. Rose, P. S. 2003. Menadžment komercijalnih banaka [Commercial Bank Management]. 4th ed., Zagreb: MATE.
17. San Jose, L., Retolaza, J. L. 2008. ‛Information Transparency as a Differentiation Factor of Ethical Banking in Europe: A Radical Affinity Index Approach’, The Icfai University Journal of Bank Management. Vol. 7, No. 3, pp. 7-22.
18. San Jose, L., Retolaza, J. L., Gutierrez-Goiria, J. 2011. ‛Are Ethical Banks Different? A Comparative Analysis Using the Radical Affinity Index’, Journal of Business Ethics. Vol. 100, No. 1, pp. 151-173.
19. Tsang, E. W. K., 1998. ‛A Longitudinal Study of Corporate Social Reporting in Singapore: The Case of the Banking, Food and Beverages and Hotel Industries’, Accounting, Auditing & Accountability Journal. Vol. 11, No. 5, pp. 624-635.
20. World Economic Forum, The Global Competitiveness Report, 2014-2015. Available at: http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2014-15.pdf
ethical banks, sustainable finance, bank profitability, institutional theory
Novokmet Kundid, A. 2015, “Exploring the determinants of ethical banks emergence and performance” in Boitan I., Barbu T. (Eds.) Financial industry at the crossroads between current practices and ethical virtues (Studies in Philosophy, Law and Economics), Sumy: Taadler Publishing House, LTD, pp. 1-20. Available at http://taadler.com/a62