Interdependence between banking earnings, banking security and growth achievement: case study in the ASEAN community

Abstract

Purpose – The main purpose of this paper is to examine the existence of interdependence amongst banking earnings, banking security and growth performance across the Association of Southeast Asian Nations (ASEAN) region. Design/methodology/approach – This paper utilizes a panel autoregressive distributed lag method with the annual data of nine ASEAN members over 1996–2017. Findings – Only the short-run Granger causal impact of banking profitability on economic expansion is supported, while the long-run Granger causality between all the variables is strongly recognized. Increased banking well-being supports economic development, while higher banking security might have inverse impacts. However, increasing the banking profit without the corresponding better soundness can be detrimental to the economic growth in the short run and much more in the long run. Thus, improving banking profitability and stability simultaneously has positive net effects on the economic development. Research limitations/implications – This research is restricted to unavailable data and limited measurements of both banking profitability and stability. Further inclusion of other macro-economic variables, other banking development aspects or even non-banking indicators should also be considered. Practical implications – National governments should emphasize a convenient financial environment, which can strongly enhance the positive relationship between banking earnings, banking safeness and output growth. Also, the relevant policies on higher banking well-being and stricter security obligations have to be simultaneously maintained. Originality/value – Few papers have inspected the interrelationship between banking stability, banking profitability and economic growth, particularly in the ASEAN region. This causes the banking literature shortage, as well as insufficient insights for the financial policymakers into their endogenous dynamics. Thus, the study is the first attempt to fulfil the research gap.