The Impact of Non-Performing Loans on Bank's Operating Efficiency for Taiwan Banking Industry

Liang, Chiung‐Ju; Yao, Ming-Li; Hwang, Dar-Yeh; Wu, Wei-Hsiung

doi:10.1142/s0219091508001350

Cited by 14 publications

(2 citation statements)

References 24 publications

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“…It is evidenced that rapid growth of non-performing loans signals bank failure (Gonzalez, 2005). This proxy is commonly used by Ayuso et al (2004), Jokipii and Milne (2011), Shim (2013), Huang, Ko, and Liu (2004), Liang, Yao, Hwang, and Wu, (2008), Lu and Boateng, (2017), Zheng, Moudud-Ul-Huq, Rahman, and Ashraf (2017), and among others. We also incorporate z -score as an alternative measure of risk for robustness checks in the second part of the fourth section.…”

Section: Data and Variablesmentioning

confidence: 99%

The Impact of Business Cycle on Banks’ Capital Buffer, Risk and Efficiency: A Dynamic GMM Approach from a Developing Economy

Moudud‐Ul‐Huq

2019

Global Business Review

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This article applies the generalized method of moments (GMM) to examine the relationship between capital buffer, risk and efficiency adjustments over the macroeconomic cycles. Using a panel dataset of 32 Bangladeshi commercial banks over the period from 2000 to 2014, we find an inverse relationship between the business cycle and capital buffers, while a positive relationship between the business cycle and bank risk. These findings support the implementation of countercyclical capital buffers in Basel III Accord to ensure bank safety during economic downturns. We also observe that the bank efficiency positively responds to macroeconomic fluctuations. While examining the impact of capital buffers on bank behaviour, we find that low buffer banks raise the level of capital buffers and improve the efficiency over time. In contrast, high buffer banks incline to raise investment in risky projects by deterioration of capital ratios during economic upturns. In this case, high buffer banks in developing countries should take risk and efficiency issues into great consideration and force low capitalized banks to follow the Basel III guidelines more stringently to adjust capital buffers, risk and efficiency with macroeconomic bounce. Also, developing countries, regulatory bodies are adopting and implementing Basel guidelines slowly, and thus it has volunteer impact on the buffer, risk and efficiency adjustments. So the regulatory bodies should be adapted the global financial changes that will be enhanced country’s financial market.

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Section: Data and Variablesmentioning

confidence: 99%

The Impact of Business Cycle on Banks’ Capital Buffer, Risk and Efficiency: A Dynamic GMM Approach from a Developing Economy

Moudud‐Ul‐Huq

2019

Global Business Review

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“…They drew the conclusion that restructuring generally did not increase the efficiency of the banking system. Liang et al (2008) applied DEA to analyze the efficiency of Taiwan's publicly-listed banks taking into account the influence of the rising non-performing loan ratio. It was found that efficiency scores of the originally more-efficient new private banks significantly fell behind that of the old public banks.…”

Section: Literature Reviewmentioning

confidence: 99%

Efficiency of Thai Commercial Banks: Pre- vs. Post-1997 Financial Crisis

Chunhachinda

2010

Rev. Pac. Basin Finan. Mark. Pol.

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This study measures and compares the profit and cost efficiencies of Thai commercial banks between 1990 and 2008 which has been subdivided into the pre-crisis, the financial crisis, and the post-crisis periods. The efficiency scores are measured using a combination of parametric and non-parametric frontier approach. Both average profit and cost efficiency levels of the post-crisis period are found to be significantly lower than those of the pre-crisis period. The evidence also indicates that the real GDP growth rate and some general and financial characteristics are correlated with the efficiency level of Thai commercial banks. of foreign-owned as opposed to domestic-owned banks, and the impact of the financial crisis.Since the 1997 crisis, there have been at least four significant changes in the Thai banking industry, and it is these changes which are the main motivation behind this study. Firstly, the ownership structure has changed dramatically due to the lift of foreign limit control by the Bank of Thailand. This factor affected the ways banks were governed because of the changes incurred by foreign acquisitions and/or domestic mergers. Secondly, the new concept "non-performing-loan (NPL)" was introduced after the crisis. Thirdly, the average capital ratio measured by the equity to total assets decreased from 7.11% before the crisis to 6.58% during the crisis, then increased to 8.72% during the post-crisis period. Finally, the banking industry began taking higher market risks after the crisis causing the percentage of non-interest income to interest income to increase substantially.By taking these factors into consideration, this paper is different from previous studies in several ways. For example, unlike other examinations of the Thai banking system, this paper delivers an updated assessment, which incorporates a much longer duration (1990)(1991)(1992)(1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008) than previous studies. In addition, this paper will measure and compare efficiency levels during the pre-crisis and post-crisis periods. Thus, the full sample period can be divided into three sub-periods for the purpose of comparison: the pre-crisis from 1990 to 1996, the financial crisis from 1997 to 2000, and the post-crisis from 2001 to 2008. Furthermore, this paper is the first to fully utilize an integrated parametric and non-parametric approach in measuring the efficiency levels of Thai commercial banks. That is, cost and profit inefficiency scores are estimated by combining the stochastic frontier approach with data envelopment analysis. It is also important to mention that the inputs and outputs have chosen are based upon Sealey and Lindley (1977), a work which recognizes that the core activity of banks is intermediation.In order to add further detail to our study, possible correlated factors are examined to help explain the difference in average efficiency levels especially between the pre-crisis and post-crisis periods. The generalized least square will b...

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Balancing bank profits and nonperforming loans: a multiple objective programming approach

Boubaker,

Le,

Manita

et al. 2024

Ann Oper Res

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The Impact of Non-Performing Loans on Bank's Operating Efficiency for Taiwan Banking Industry

Cited by 14 publications

References 24 publications

The Impact of Business Cycle on Banks’ Capital Buffer, Risk and Efficiency: A Dynamic GMM Approach from a Developing Economy

The Impact of Business Cycle on Banks’ Capital Buffer, Risk and Efficiency: A Dynamic GMM Approach from a Developing Economy

Efficiency of Thai Commercial Banks: Pre- vs. Post-1997 Financial Crisis

Balancing bank profits and nonperforming loans: a multiple objective programming approach

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