Decomposing banking performance into economic and credit risk efficiencies

Jean-Philippe Boussemart, Hervé Leleu, Zhiyang Shen, Michael Vardanyan and Ning Zhu

Post-Print from HAL

Abstract: This paper proposes a non-parametric approach of a banking production technology that decomposes performance into economic and credit risk efficiencies. The basis of our approach is to separate the production technology into two sub-technologies. The former is the production of non-interest income and loans from a set of traditional inputs. The latter is attached to the production of interest income from loans where an explicit distinction between good and non-performing loans is introduced. Economic efficiency comes from the production of good outputs, namely interest and non-interest income, while credit risk management efficiency is related to the minimization of the non-performing loans that can be considered as an unintended or bad output. The model is applied to Chinese financial data covering 30 banks from 2005 to 2012 and different scenarios are considered. The results indicate that income could be increased by an average rate of 16% while non-performing loans could be decreased by an average rate of 33%. According to our results, banking managers could strike a balance between economic performance and credit risk management and make more appropriate decisions in line with their preferences.

Keywords: Data Envelopment Analysis; Credit risk; Economic efficiency; Banking performance; Non-performing loans (search for similar items in EconPapers)
Date: 2019-09-01
References: Add references at CitEc
Citations: View citations in EconPapers (21)

Published in European Journal of Operational Research, 2019, 277 (2), pp.719-726. ⟨10.1016/j.ejor.2019.03.006⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Decomposing banking performance into economic and credit risk efficiencies (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02497996

DOI: 10.1016/j.ejor.2019.03.006

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().