The Effects of Nonperforming Loans on Dynamic Network Bank Performance

Abstract

This paper is to explore the relationship between banks' performance and their nonperforming loans (NPLs). The banks' performance through a network production process structure with NPLs is developed. With increasing NPLs in recent years, the quality of lending assets is a key significant and influencing factor for banks' operational risk. The research methodology is to integrate the radial and nonradial measures of efficiency into the network production process framework with NPLs; this study utilizes network epsilon-based measure model to evaluate the banking industry performance. In addition, the key characteristics of the bank industry including those of financial holding companies and privatized government banks are needed to be figured out and to provide insight into what causes imperfectly competitive conditions for some banks. The results demonstrate that the banking sector grew consistently in three aspects of operation: operating performance, profitability performance, and risk management in the last five years of the subject period. These results showed that the overall banking sector was capable of pursuing growth in both operations and profits while accounting for risk management. The potential applications and strengths of network data envelopment analysis in assessing financial organizations are also highlighted.

Comparing the Cash Flows’ Influence on Capital Adequacy Ratio of Indonesian and Malaysian Commercial Banks

“…The five-year sample from five banks selection refers to Ahmed et al (2015) when measuring the CAR's influence on the banks' profitability in Pakistan from 2009 to 2013. Liu et al (2017) adopt such an approach in measuring the effect of the non-performing loan in Taiwan from 2010 to 2014, and Rahman & Nitu (2018) when comparing the performance of state-owned and private commercial banks from 2010 to 2014 in Bangladesh.…”

Effects of Non-Performing Loan on Financial Performance: A Hypothetical Evaluation on All Scheduled Banks in Bangladesh

“…As a result of the provision of classified loans, increased NPL may result in lower profit. The use of NPLs as a performance Journal of International Business and Management (JIBM) https://rpajournals.com/jibm indicator is advised; banks that employ NPLs as a performance indicator will see significant improvements in their results (Liu et al, 2017).…”

Impact of Non-Performing Loans on Smaller Us Bank Profitability and Value in the Post-Crisis Period

“…Their results did not find any significant correlation between bank profitability measures and the credit risk variables tested (Saeed & Zahid, 2016). Another study by Liu, Wu, Lin and Lu (2017) sampled 286 leading banks in Taiwan for the period of 2004-2014. They found that banks that had implemented financial controls over non-performing loans outperformed other banks (Liu et al, 2017).…”

“…Another study by Liu, Wu, Lin and Lu (2017) sampled 286 leading banks in Taiwan for the period of 2004-2014. They found that banks that had implemented financial controls over non-performing loans outperformed other banks (Liu et al, 2017). A further study by Ishak, Ismail, Razali, Baker and Ramlan (2016) sampled 3 out of the top 5 banks in Malaysia for the period of 1998-2015.…”

“…Their results found that ROE is impacted by credit risk indicators and that banks can improve financial performance by implementing credit risk management strategies (Ishak et al, 2016). Overall, research studies have found that credit risk management improves financial performance (Saeed & Zahid, 2016;Liu et al, 2017;Ishak et al, 2016).…”