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Do non-performing loans impact bank efficiency?

Quang Thanh Phung, Huong Van Vu and Huy Phuoc Tran

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: This paper examines the impact of non-performing loans on bank efficiency and the mitigating effect of bank capitalisation. By employing U.S. commercial banks data from 1994 to 2018, we adopt an advance Data Envelopment Analysis (DEA) method to estimate bank efficiency and find a negative relationship between non-performing loans and bank efficiency. Banks holding a stronger capitalisation or belonging to the banking group could reduce the impact of non-performing loans on bank efficiency. It is suggested that the banking business group could help banks to increase efficiency via its internal capital market.

Keywords: Bank efficiency; Non-performing loans; Bank capitalisation; Multi-bank holding companies; Fuzzy multi-objective two-stage data envelopment analysis (search for similar items in EconPapers)
JEL-codes: C67 G14 G18 G21 G28 G32 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321003937

DOI: 10.1016/j.frl.2021.102393

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