Efficiency and risk in commercial banking: empirical evidence from East Asian countries

Sok Gee Chan, Mohd Zaini Abd Karim, Bruce Burton (Lead / Corresponding author), Bora Aktan

    Research output: Contribution to journalArticlepeer-review

    9 Citations (Scopus)

    Abstract

    This paper analyses the effects of off-balance sheet (OBS) activities and various types of risks on the cost and profit efficiencies of banks in seven East Asian countries between 2001 and 2008. Cost and profit efficiency scores are estimated using the data envelopment analysis approach. The results of this analysis are then used to identify the impact of OBS activities and risk exposures on cost and profit efficiencies using a Tobit regression. Bank insolvency risk (as measured by z-scores) is positively related to profit efficiency, while interest sensitivity, size, equity to total assets and OBS exposures all impact on cost efficiency. The analysis of the impact of input and output slacks illustrates that in around 1 in 5 cases banks' cost efficiency can be improved by adjusting the former variables, whereas in only around 1 in 100 cases a similar outcome is possible for profit efficiency.
    Original languageEnglish
    Pages (from-to)1114-1132
    Number of pages19
    JournalEuropean Journal of Finance
    Volume20
    Issue number12
    Early online date22 Jan 2013
    DOIs
    Publication statusPublished - 2 Dec 2014

    Keywords

    • bank efficiency
    • other depository institutions
    • micro finance institutions
    • mortgages
    • model construction and estimation
    • government policy and regulation

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