Using capital conservation buffer and bank leverage for predicting bank risk / Sarah Abdelhamid Abdeldaeim Korein ; Supervised Ahmed Mohamed Abotalib

Thesis (Ph.D.) - Cairo University - Faculty of Commerce - Department of Accounting

This research is motivated by regulatory debates on the viability of capital conservation buffer (CCB), regulatory leverage (RLEV), and accounting leverage (FLEV) in predicting bank risk, which, in turn, would improve the accuracy of predicting bank risk.This was achieved through examining which capital ratio can improve the prediction accuracy of bank risk, in one of the most resilient banking settings in the Middle East and North Africa (MENA) region. The analysis is performed on a sample of 16 banks (including four state-owned and 12 non-state- owned) for the period 2010-2019 in Egypt.These banks are registered at the Central Bank of Egypt (CBE). Bank risk is regressed on the three types of capital ratios and a set of control variables.There are three proxies of capital ratios used. First, the CCB is based on regulatory capital and risk-weighted assets (RWA). Second, the RLEV is based on regulatory capital and it is a non-risk-based capital ratio.Third, the FLEV is based on fair values for financial instruments and does not rely on either regulatory capital or RWA. In addition to that, two alternative proxies of bank risk are employed. First, regulatory-based measures of bank risk; namely: RWA is used in their calculations.They comprise earnings volatility (main test) and RWA density ratio (robustness checks). Second, accounting-based measures of bank risk; including assets risk and credit risk, where credit risk is used to confirm the obtained results

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