Investigating the effect of non-performing loans on technical efficiency in Malaysian banking sector

Ramli, Noor Asiah; Mohammed, Nurul Iman; Hussin, Siti Aida Sheikh; Khairi, Siti Shaliza Mohd

doi:10.1063/1.5045414

Cited by 6 publications

(8 citation statements)

References 14 publications

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“…It means that non-performing loans degrade the efficiency level of the Pakistani banking industry. Our results are validated by [119,120], who stated that the non-performing loans probably induce the inefficiency of the banking industry. Further, [98,121] made arguments that grating non-performing loans is the result of bad management that affects the banking efficiency level.…”

Section: Plos Onesupporting

confidence: 76%

Efficiency evaluation of commercial banks in Pakistan: A slacks-based measure Super-SBM approach with bad output (Non-performing loans)

et al. 2022

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According to recent figures from the State Bank of Pakistan (SBP), since 2006, commercial banks’ non-performing loans (NPLs) have significantly risen. To this end, the primary objective of this research is to explore the impact of NPLs on the operational efficiency of commercial banks in Pakistan. NPLs were incorporated as bad output in the efficiency estimation of 24 CBs for the period 2006–2017. This study employs the data envelopment analysis (DEA) Super-SBM with the undesirable output for the efficiency evaluation of CBs. To test the robustness of our results, we used two different input-output bundles (model A and model B). The findings show a significant difference exists between the results estimated with and without undesirable output. Furthermore, the results of super-efficiency estimation rank the most efficient CB for the study period and distinguish it from other efficient DMUs. Models A and B show that foreign banks are always more efficient than domestic banks, while private CBs have higher efficiency scores than public CBs in domestic banking. In addition, the big five CBs show mixed findings, as in model A, they were more efficient than other domestic CBs, while in model B were less efficient. In the second stage of the empirical study, we use the system GMM to examine the impact of NPLs, bank size, and net interest margin on CBs efficiency. We discovered that NPLs have a negative and significant effect on banking efficiency, whereas bank size and net interest margin positively affect the efficiency of commercial banks in Pakistan.

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Section: Plos Onesupporting

confidence: 76%

Efficiency evaluation of commercial banks in Pakistan: A slacks-based measure Super-SBM approach with bad output (Non-performing loans)

et al. 2022

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“…As stated by Messai and Jouini (2013), minimizing NPAs is a principal requisite for ameliorating a nation’s economic conditions. NPAs are among the major determinants, impeding banks’ solidity and growth (Ramli, Mohammed, Hussin, & Khairi, 2018). While examining the financial sector of Malaysia and Singapore, Karim, Chan, and Hassan (2010) mentioned that bank capital gets eroded due to the accumulation of problem loans.…”

Section: Introductionmentioning

confidence: 99%

Non-performing Assets and Profitability: Case of Indian Banking Sector

Gaur

Mohapatra

2020

Vision

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At present, the Indian banking sector is facing an arduous time in the form of an increasing trend in non-performing assets (NPAs), which is testing its strength and resilience. The present study aims to explore the NPA–profitability relationship for the Indian banking sector, so as to determine the gravity of the impact that NPAs have on bank profitability. Further, other bank-specific, industry-specific and macroeconomic factors impacting banking profits have been taken under consideration. A balanced panel data set comprising 37 scheduled commercial banks of India over a time frame of 14 years (2005–2018) has been used for the purpose of required analysis. Conclusions have been drawn employing fixed effect and random effect panel regression models. Due to the presence of heteroskedasticity, results for robust standard error have been reported. A highly negative correlation exists between NPA and the two profitability measures return on assets (ROA) and return on equity (ROE). The results of this study have established NPA as the major detractor of banking industry’s profits because NPA carries the most negative regression coefficient which is highly significant. It implies that declining credit quality hampers banks’ performance and leads to their collapse.

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“…We measure bank efficiency in the first step and analyze the factors that may influence its evolution in the second. This methodology has been employed effectively in various banking contexts in developed and developing countries (Karim et al 2010;Ramli et al 2018). Thus, in this section, we will determine efficiency scores and analyze the effect of credit risk on bank efficiency.…”

Section: Ii-methodology Of the Effect Of Credit Risk On Bank Efficiencymentioning

confidence: 99%

Effect of Credit Risk on the Efficiency of Banks in Member Countries of the Economic and Monetary Community of Central Africa (Cemac)

Yanga¹

2020

JEDS

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The objective of this article is to determine the effect of credit risk on the efficiency of banks in the member countries of the Economic and Monetary Community of Central Africa (CEMAC). To achieve this goal, we used the stochastic boundary method to determine the efficiency score of CEMAC banks. Based on this score, we applied the Tobit model to show the effect of credit risk on the efficiency of banks over the period 2004-2017. The results obtained reveal that CEMAC banks are inefficient in terms of cost and that the credit risk measured from the ratio between bad debts and loans granted negatively influences the efficiency of these banks.

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Investigating the effect of non-performing loans on technical efficiency in Malaysian banking sector

Cited by 6 publications

References 14 publications

Efficiency evaluation of commercial banks in Pakistan: A slacks-based measure Super-SBM approach with bad output (Non-performing loans)

Efficiency evaluation of commercial banks in Pakistan: A slacks-based measure Super-SBM approach with bad output (Non-performing loans)

Non-performing Assets and Profitability: Case of Indian Banking Sector

Effect of Credit Risk on the Efficiency of Banks in Member Countries of the Economic and Monetary Community of Central Africa (Cemac)

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