FINANCIAL STABILITY IN THE BANKING SYSTEM OF EMERGING ECONOMIES

Abstract

This study investigated the challenges that face financial stability in the banking system of the emerging economy. This study looked at the following variables as the objectives; the deposit interest rates, non-performing loans as well as the bank liquidity influence on financial stability.  This study analyzed the financial stability of India, China and Mexico. A secondary data source was used to collect the information and was obtained from the databases of the World Bank. These data were related to financial stability in emerging economies banking systems. After the data were obtained, a regression analysis was carried out, which was obtained through the use of the SPSS (Statistics Packages of Social Sciences). The regressed data was analyzed based on the coefficient of determination which was obtained to be 78.1% for India, 93 % for China and 13.4% for Mexico. Thus, the result showed a positive relationship between the model and the variables for India and China. This showed that stability in the banking system was positively influenced by the rate of non-performing loans, the deposits in the interest rates as well as the banks liquidity influence. On the other hand, in the case of Mexico, the results did not show a positive relationship between the variables as its coefficient of determination was below 50%.