- CREDIT RISK AND EFFICIENCY IN THE EUROPEAN BANKING SYSTEMS: A THREE-STAGE ANALYSIS

José Pastor

Working Papers. Serie EC from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: Increased competition and the attempts of European banks to increase their presence in other markets may have affected the efficiency and credit risk. The first of this aspects is based on the incentive to the banks to reduce cost in order to gain in competitiveness. The second is associated to their lack of knowledge of such markets and/or acceptance of a higher risk in order to increase their market share. Despite the importance of these aspects, banking literature has usually analyzed the effects of competition on the efficiency of banking systems without considering these aspects. The few studies that attempt to obtainrisk adjusted efficiency measures do not consider that part of the risk is due to exogenous circumstances. This article proposes a new three stage sequential technique, based on theDEA model and on the decomposition of risk into its internal and external components, for obtaining efficiency measures adjusted for risk and environment. It is seen that the technique allows the use of any existing technique of incorporation of environmental variables in DEA analysis. El incremento de la competencia y los intentos de los bancos europeos por aumentar supresencia en otros mercados pueden haber afectado tanto al nivel de eficiencia bancaria como alriesgo de crédito. El primero de los aspectos se fundamenta en el incentivo que tienen los bancosa reducir los costes para ganar competitividad. El segundo, está asociado a la ausencia decompetencia en tales mercados y/o a la aceptación de niveles mayores de riesgo con el fin deincrementar la cuota de mercado. A pesar de la importancia de estos aspectos, la literaturabancaria tradicionalmente ha analizado los efectos de la competencia en la eficiencia de lossistemas bancarios sin considerar estos efectos sobre el riesgo. Los escasos estudios queintentan obtener medidas de eficiencia ajustadas por el riesgo no consideran que parte del riesgoes debido a circunstancias exógenas. Este artículo propone una nueva técnica secuenciencial entres etapas, basado en el modelo DEA y en la descomposición del riesgo en sus componentesexterno e interno, para la obtención de medidas de eficiencia ajustadas por el riesgo y elambiente. La técnica se aplica al análisis de la eficiencia de los sistemas bancarios europeos ypermite el uso de cualquiera de las tecnicas existentes para la incorporación de variablesambientales en un contexto DEA.

Keywords: DEA; riesgo de crédito; morosidad; eficiencia; variables ambientales DEA; credit risk; bad loans; efficiency; environmental variables. (search for similar items in EconPapers)
Pages: 33 pages
Date: 1999-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published by Ivie

Downloads: (external link)
http://www.ivie.es/downloads/docs/wpasec/wpasec-1999-18.pdf Fisrt version / Primera version, 1999 (application/pdf)

Related works:
Journal Article: Credit risk and efficiency in the European banking system: A three-stage analysis (2002)
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:ivi:wpasec:1999-18

Access Statistics for this paper

More papers in Working Papers. Serie EC from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) Contact information at EDIRC.
Bibliographic data for series maintained by Departamento de Edición ().