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 journalArticle

    7 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

    Fingerprint

    Profit efficiency
    Commercial banking
    Asian countries
    Empirical evidence
    Balance sheet
    Data envelopment analysis
    Equity
    Insolvency risk
    Slacks
    Risk exposure
    Z-score
    Assets
    Tobit regression

    Keywords

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

    Cite this

    Chan, Sok Gee ; Karim, Mohd Zaini Abd ; Burton, Bruce ; Aktan, Bora. / Efficiency and risk in commercial banking : empirical evidence from East Asian countries. In: European Journal of Finance. 2014 ; Vol. 20, No. 12. pp. 1114-1132.
    @article{4bf25857d8d54871bbfa5c6e57c32dc6,
    title = "Efficiency and risk in commercial banking: empirical evidence from East Asian countries",
    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.",
    keywords = "bank efficiency, other depository institutions, micro finance institutions, mortgages, model construction and estimation, government policy and regulation",
    author = "Chan, {Sok Gee} and Karim, {Mohd Zaini Abd} and Bruce Burton and Bora Aktan",
    year = "2014",
    month = "12",
    day = "2",
    doi = "10.1080/1351847X.2012.745008",
    language = "English",
    volume = "20",
    pages = "1114--1132",
    journal = "European Journal of Finance",
    issn = "1351-847X",
    publisher = "Taylor & Francis",
    number = "12",

    }

    Efficiency and risk in commercial banking : empirical evidence from East Asian countries. / Chan, Sok Gee; Karim, Mohd Zaini Abd; Burton, Bruce (Lead / Corresponding author); Aktan, Bora.

    In: European Journal of Finance, Vol. 20, No. 12, 02.12.2014, p. 1114-1132.

    Research output: Contribution to journalArticle

    TY - JOUR

    T1 - Efficiency and risk in commercial banking

    T2 - empirical evidence from East Asian countries

    AU - Chan, Sok Gee

    AU - Karim, Mohd Zaini Abd

    AU - Burton, Bruce

    AU - Aktan, Bora

    PY - 2014/12/2

    Y1 - 2014/12/2

    N2 - 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.

    AB - 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.

    KW - bank efficiency

    KW - other depository institutions

    KW - micro finance institutions

    KW - mortgages

    KW - model construction and estimation

    KW - government policy and regulation

    U2 - 10.1080/1351847X.2012.745008

    DO - 10.1080/1351847X.2012.745008

    M3 - Article

    VL - 20

    SP - 1114

    EP - 1132

    JO - European Journal of Finance

    JF - European Journal of Finance

    SN - 1351-847X

    IS - 12

    ER -