The effect of loan portfolio diversification on stock returns. the mediating role financial solvency in commercial banks

An applied study on a sample of Iraqi commercial bank Listed on the Iraq Stock Exchange for the period from (2005-2022)

A thesis submitted to the Council of the College of Administration and Economics University of Karbala as part of the requirements for obtaining a Master’s degree in Business Administration

A letter written by the student

Fatima Ahmed Taher

Supervised by

Professor Dr Ali Ahmed Fares

Abstract

This study highlighted the diversification of the interpretation of portfolio as an integration variable from using (Hirschman-Herfindahl) through stock returns as a dependent variable and the different mediating role of financial solvency, as they used the Basel II index, which are (full coverage ratio, relative to capital). This study was conducted for a sample of Iraqi NARN, which is (8) banks listed on the Iraqi Stock Exchange, for a period of one year (2005-2022), and the annual phenomenon was relied upon to shed light on the financial statements of the banks in the study chart, The problem of the study was embodied in knowing the extent of diversification of loans in the banks in the study sample, and whether the banks in the study sample have the financial solvency necessary to achieve outstanding performance. The study hypotheses were tested and analyzed statistically using programs and statistical measures (EViews V.12, Panel Data, Excel, Spss) from in order to reach the goal of the study. The study reached several conclusions, including that there is a negative impact relationship for diversifying the loan portfolio on returns, and the indirect impact relationship was positive for financial solvency indicators, for which the results were all significant. This indicates that the concentration in granting loans often leads to a decrease in stock returns, as well as the impact of diversifying the loan portfolio was positive through financial solvency indicators, which had positive and statistically significant results. This indicates that diversifying the loan portfolio leads to increased stock returns.

Keywords: (loan portfolio diversification, stock return, financial solvency, Basel III, liquidity)

The effect of loan portfolio diversification on stock returns. the mediating role financial solvency in commercial banks

An applied study on a sample of Iraqi commercial bank Listed on the Iraq Stock Exchange for the period from (2005-2022)

A thesis submitted to the Council of the College of Administration and Economics University of Karbala as part of the requirements for obtaining a Master’s degree in Business Administration

A letter written by the student

Fatima Ahmed Taher

Supervised by

Professor Dr Ali Ahmed Fares

Abstract

This study highlighted the diversification of the interpretation of portfolio as an integration variable from using (Hirschman-Herfindahl) through stock returns as a dependent variable and the different mediating role of financial solvency, as they used the Basel II index, which are (full coverage ratio, relative to capital). This study was conducted for a sample of Iraqi NARN, which is (8) banks listed on the Iraqi Stock Exchange, for a period of one year (2005-2022), and the annual phenomenon was relied upon to shed light on the financial statements of the banks in the study chart, The problem of the study was embodied in knowing the extent of diversification of loans in the banks in the study sample, and whether the banks in the study sample have the financial solvency necessary to achieve outstanding performance. The study hypotheses were tested and analyzed statistically using programs and statistical measures (EViews V.12, Panel Data, Excel, Spss) from in order to reach the goal of the study. The study reached several conclusions, including that there is a negative impact relationship for diversifying the loan portfolio on returns, and the indirect impact relationship was positive for financial solvency indicators, for which the results were all significant. This indicates that the concentration in granting loans often leads to a decrease in stock returns, as well as the impact of diversifying the loan portfolio was positive through financial solvency indicators, which had positive and statistically significant results. This indicates that diversifying the loan portfolio leads to increased stock returns.

Keywords: (loan portfolio diversification, stock return, financial solvency, Basel III, liquidity)