The effects of loan portfolio concentration on Brazilian banks’ return and risk

Tabak, Benjamin Miranda; Fazio, Dimas M.; Cajueiro, Daniel O.

doi:10.1016/j.jbankfin.2011.04.006

Cited by 137 publications

(93 citation statements)

References 43 publications

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“…Therefore, the measure of diversification is crucial for our research. As prior researches proved that, the Herfindahl-Hirschman Index (HHI) can be a good measure of diversification [42], while Tabak et al [43] showed that entropic index can also be used as a measure of diversification. Therefore, we follow the traditional research and use the HHI to measure the diversification of banks and the entropy index (ENTI) is used for checking the robustness of our results.…”

Section: The Diversified Use Of Entropymentioning

confidence: 99%

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Does Income Diversification Benefit the Sustainable Development of Chinese Listed Banks? Analysis Based on Entropy and the Herfindahl–Hirschman Index

Jiang

Han

2018

Entropy

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Abstract:We collected data pertaining to Chinese listed commercial banks from 2008 to 2016 and found that the competition between banks is becoming increasingly fierce. Commercial banks have actively carried out diversification strategies for greater returns, and the financial reports show that profits are increasingly coming from the non-interest income benefits of diversification strategies. However, diversification comes with risk. We built a panel threshold model and investigated the effect of income diversification on a bank's profitability and risk. Diversification was first measured by the Herfindahl-Hirschman index (HHI), and the results show that there is a nonlinear relationship between diversification and profitability or risk does exist. We introduced an interesting index based on the entropy to test the robustness of our model and found that a threshold effect exists in both our models, which is statistically significant. We believe the combination of the entropy index (ENTI) and the HHI enables more efficient study of the relationship between diversification and profitability or risk more efficiently. Bankers and their customers have increasingly been interested in income diversification, and they value risk as well. We suggest that banks of different sizes should adopt the corresponding diversification strategy to achieve sustainable development.

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Section: The Diversified Use Of Entropymentioning

confidence: 99%

“…Therefore, considering the available data and prior studies (see [43,[48][49][50][51]), three variables were selected as dependent variables: the risk-adjusted return on assets (SHROA), the non-performing loan ratio (NPLR), and the Z-score.…”

Section: Variable Selection and Data Sourcesmentioning

confidence: 99%

Does Income Diversification Benefit the Sustainable Development of Chinese Listed Banks? Analysis Based on Entropy and the Herfindahl–Hirschman Index

Jiang

Han

2018

Entropy

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“…On the one hand, there are studies that link risk with performance. To name just a few, analyses exist for the US (Hughes and Mester 1998), Japan (Altunbas et al 2000;Barros et al 2012), South Korea (Park and Weber 2006;Banker et al 2010), Taiwan (Hsiao et al 2010), Brasil (Tabak et al 2011), for various Latin American countries (Yildirim and Philippatos 2007) or for 87 countries around the world (Lozano-Vivas and Pasiouras 2010). Main findings indicate that the level of financial capital is positively related to efficiency and that using risk variables does not contribute to explaining scale inefficiencies (Hughes and Mester 1998;Altunbas et al 2000).…”

Section: Theoretical Underpinningsmentioning

confidence: 99%

Monitoring Bank Performance in the Presence of Risk

Epure

Lafuente

2014

SSRN Journal

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This paper devises management and accounting tools for monitoring bank performance. We first propose a multidimensional efficiency measure that integrates credit risk and is adapted to the real banking technology. Second, traditional accounting ratios complement the analysis. Third, the impact of different risk measures over efficiency and accounting ratios is shown. Fourth, we examine the effect of CEO turnover on future performance. An empirical application considers a unique dataset of Costa Rican banks during 1998-2007. Results reveal that performance improvements follow regulatory changes and that risk explains differences in performance. Non-performing loans negatively affect efficiency and return on assets, whereas the capital adequacy ratio positively affects the net interest margin. This supports that incurring monitoring costs and having higher levels of capitalisation may enhance performance. Finally, results confirm that appointing CEOs from outside the bank significantly improves performance, thus suggesting the potential benefits of new organisational practices.

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“…However, findings fro m emp irical studies indicated that the industries managed under loan portfolios have lower levels of losses after being monitored. Tabak et al (2010) took the bank financing of Brazil as a case study to assess the diversity of the loan portfolios of banks. He also assessed the relationship between loan concentration of banks and risks and returns.…”

Section: Introductionmentioning

confidence: 99%

An Empirical Study on Loan Concentration and Business Performance–Case of 3D1S Industries in Taiwan

2017

American Research Journal of Business management

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Abstract:The paper first analyze the loan concentration of Taiwan indus tries between year 1990 to 2014. The high five industries are orderly as finance, shipping, touris m, semi-conductive and steel, respectively. Ho wever, DRAM, LED, LCD and Solar are the four supporting industries in Taiwan. Yet, they were in financial crisis through the change of domestic and foreign economic environ ment. The government try to rescue these industries, it will lead to the high loan concentration. Not only affect the business performance, but also increase the non-performing loans. In empirical study, the paper apply panel data regression model with fixed effect to discuss the relationship of loan concentration on return of asset(ROA). The results show that the coefficient of loan concentration is negative. Which imp lies that the high loan conce ntration will decrease the ROA of industries and banking.

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The effects of loan portfolio concentration on Brazilian banks’ return and risk

Cited by 137 publications

References 43 publications

Does Income Diversification Benefit the Sustainable Development of Chinese Listed Banks? Analysis Based on Entropy and the Herfindahl–Hirschman Index

Does Income Diversification Benefit the Sustainable Development of Chinese Listed Banks? Analysis Based on Entropy and the Herfindahl–Hirschman Index

Monitoring Bank Performance in the Presence of Risk

An Empirical Study on Loan Concentration and Business Performance–Case of 3D1S Industries in Taiwan

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