The commercial banks’ credit risk efficiency: Empirical evidence from Kosovo
DOI:
https://doi.org/10.15549/jeecar.v8i2.635Keywords:
risk management, creditor, commercial banks, capital, bank efficiencyAbstract
Commercial banks' credit risk management is a function that focuses on events that may affect the achievement of objectives. Improper management will result in negative consequences or results. Therefore, banks usually pay more attention to events with a higher probability and impact of a direct loss of revenue and capital than events that may result in positive effects. This research adopts secondary data and seeks to analyze credit risk management of commercial banks in Kosovo through a developed DEA (Data Envelopment Analysis) model. The study covers seven commercial banks in Kosovo for the period 2008-2016 and uses Tobit regression to determine credit risk efficiency. The estimation results show a statistically significant positive relationship between bank efficiency, capital adequacy, and loans. Moreover, the study found that banks' efficiency factors, including profitability, deposits, costs, banks size, GDP growth, and inflation, are not statistically significant.
References
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Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking and Finance. https://doi.org/10.1016/S0378-4266(97)00003-4
Berger, A. N., & Humphrey, D. B. (1997). Efficiency of financial institutions: International survey and directions for future research. European Journal of Operational Research, 98(2), 175–212. https://doi.org/10.1016/S0377-2217(96)00342-6
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Blejer, M. I. (2006). Economic growth and the stability and efficiency of the financial sector. Journal of Banking & Finance, 30(12), 3429–3432. https://doi.org/http://dx.doi.org/10.1016/j.jbankfin.2006.06.001
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Fan, L., & Shaffer, S. (2004). Efficiency versus risk in large domestic US banks. Managerial Finance, 30(9), 1–19. https://doi.org/10.1108/03074350410769245
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Grigorian, D. A., & Manole, V. (2002). Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis. IMF Working Papers. https://doi.org/10.5089/9781451856651.001
Hasan, I., Wachtel, P., & Zhou, M. (2009). Institutional development, financial deepening and economic growth: Evidence from China. Journal of Banking and Finance. https://doi.org/10.1016/j.jbankfin.2007.11.016
Havrylchyk, O. (2006). Efficiency of the Polish banking industry: Foreign versus domestic banks. Journal of Banking and Finance. https://doi.org/10.1016/j.jbankfin.2005.07.009
Isik, I., & Hassan, M. K. (2002a). Cost and profit efficiency of the turkish banking industry: An empirical investigation. Financial Review, 37(2), 257–279. https://doi.org/10.1111/1540-6288.00014
Isik, I., & Hassan, M. K. (2002b). Technical, scale and allocative efficiencies of Turkish banking industry. Journal of Banking and Finance, 26(4), 719–766. https://doi.org/10.1016/S0378-4266(01)00167-4
Ismail, F., Shabri Abd. Majid, M., & Rahim, R. A. (2013). Efficiency of Islamic and conventional banks in Malaysia. Journal of Financial Reporting and Accounting. https://doi.org/10.1108/jfra-03-2013-0011
Iveta, ?. (2015). Banking Efficiency Determinants in the Czech Banking Sector. Procedia Economics and Finance, 23(October 2014), 191–196. https://doi.org/10.1016/S2212-5671(15)00367-6
Jiménez, G., & Saurina, J. (2006). Credit Cycles, Credit Risk, and Prudential Regulation. International Journal of Central Banking, 2(January), 65–98. https://doi.org/10.1227/01.NEU.0000349921.14519.2A
Karim, M. Z. A., Chan, S. G., & Hassan, S. (2010). Bank efficiency and non-performing loans: Evidence from malaysia and Singapore. Prague Economic Papers. https://doi.org/10.18267/j.pep.367
Liu, J. S., Lu, L. Y. Y., Lu, W. M., & Lin, B. J. Y. (2013). Data envelopment analysis 1978-2010: A citation-based literature survey. Omega (United Kingdom). https://doi.org/10.1016/j.omega.2010.12.006
Lozano-vivas, A. A. N. A., Pastor, J. T., & Pastor, J. M. (2016). An Efficiency Comparison of European Banking Systems Operating under Different Environmental Conditions. Journal of Productivity Analysis, 18(1), 59–77.
McCue, C., & McCue, C. (2015). Chapter 1 – Basics. In Data Mining and Predictive Analysis. https://doi.org/10.1016/B978-0-12-800229-2.00001-8
Mester, L. J. (1996). A study of bank efficiency taking into account risk-preferences. Journal of Banking and Finance. https://doi.org/10.1016/0378-4266(95)00047-X
Mohamad Noor, M., & Nor Hayati, A. (2012). The Determinants of World Islamic Banks’ Efficiency: Does Country Income Level have an Impact?? Journal of Islamic Economics, Banking and Finance.
Mokhtar, H. S. A., Abdullah, N., & Alhabshi, S. M. (2007). Technical and Cost Efficiency of Islamic Banking in Malaysia. Review of Islamic Economics.
Omankhanlen, Alex, E. (2012). The Role of Banks in Capital Formation and Economic Growth: The Case of Nigeria. Economy Transdisciplinarity Cognition, 5(103), 103–112. Retrieved from www.ugb.ro/etc
Pasiouras, F. (2008a). Estimating the technical and scale efficiency of Greek commercial banks: The impact of credit risk, off-balance sheet activities, and international operations. Research in International Business and Finance, 22(3), 301–318. https://doi.org/10.1016/j.ribaf.2007.09.002
Pasiouras, F. (2008b). Estimating the technical and scale efficiency of Greek commercial banks: The impact of credit risk, off-balance sheet activities, and international operations. Research in International Business and Finance, 22(3), 301–318. https://doi.org/10.1016/j.ribaf.2007.09.002
Peek, J., & Rosengren, E. S. (2012). The Role of Banks in the Transmission of Monetary Policy. In The Oxford Handbook of Banking. https://doi.org/10.1093/oxfordhb/9780199640935.013.0010
Psillaki, M., Tsolas, I. E., & Margaritis, D. (2010). Evaluation of credit risk based on firm performance. European Journal of Operational Research, 201(3), 873–881. https://doi.org/10.1016/j.ejor.2009.03.032
Rosman, R., Wahab, N. A., & Zainol, Z. (2014). Efficiency of Islamic banks during the financial crisis: An analysis of Middle Eastern and Asian countries. Pacific Basin Finance Journal. https://doi.org/10.1016/j.pacfin.2013.11.001
Saha, A., Ahmad, N. H., & Dash, U. (2015). Drivers of technical efficiency in Malaysian banking: A new empirical insight. Asian-Pacific Economic Literature, 29(1), 161–173. https://doi.org/10.1111/apel.12091
Sufian, F., Akbar, M., & Mohamad, N. (2009). The determinants of Islamic banks’ efficiency changes Empirical evidence from the MENA and Asian banking sector. International Journal of Islamic and Middle Eastern Finance and Management, 2(2), 120–138. https://doi.org/10.1108/17538390910965149
Thoraneenitiyan, N., & Avkiran, N. K. (2009). Measuring the impact of restructuring and country-specific factors on the efficiency of post-crisis East Asian banking systems: Integrating DEA with SFA. Socio-Economic Planning Sciences. https://doi.org/10.1016/j.seps.2008.12.002
Toçi, V. Z. (2009). Efficiency of banks in South-East Europe?: With special reference to Kosovo. Central Bank of Kosovo Working Paper, (4).
Vu, H., & Nahm, D. (2013). The determinants of profit efficiency of banks in Vietnam. Journal of the Asia Pacific Economy. https://doi.org/10.1080/13547860.2013.803847
Wahab N., Rosman R., dhe Z. Z. (2017). HOW EFFICIENT WERE ISLAMIC BANKS DURING THE FINANCIAL CRISIS?? EMPIRICAL EVIDENCE FROM ASIAN. Intellectual Economics, 11(1), 44–62. https://doi.org/10.13165/IE-17-11-1-04
Akhigbe, A., & McNulty, J. (2005). Profit efficiency sources and differences among small and large U.S. commercial banks. Journal of Economics and Finance. https://doi.org/10.1007/BF02761575
Altman, E. I., & Saunders, A. (1997). Credit risk measurement: Developments over the last 20 years. Journal of Banking & Finance, 21, 1721–1742. https://doi.org/10.1016/S0378-4266(97)00036-8
Altunba?, Y., Gardener, E. P. M., Molyneux, P., & Moore, B. (2001). Efficiency in European banking. European Economic Review, 45(10), 1931–1955. https://doi.org/10.1016/S0014-2921(00)00091-X
Altunbas, Y., Liu, M. H., Molyneux, P., & Seth, R. (2000). Efficiency and risk in Japanese banking. Journal of Banking and Finance. https://doi.org/10.1016/S0378-4266(99)00095-3
Ataullah, A., & Le, H. (2006). Economic reforms and bank efficiency in developing countries?: the case of the Indian banking industry Economic reforms and bank efficiency in developing countries?: the case of the Indian banking industry. Applied Financial Economics, 16(November 2013), 37–41. https://doi.org/10.1080/09603100500407440
Ben Rejeb, A., & Boughrara, A. (2013). Financial liberalization and stock markets efficiency: New evidence from emerging economies. Emerging Markets Review. https://doi.org/10.1016/j.ememar.2013.09.001
Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking and Finance. https://doi.org/10.1016/S0378-4266(97)00003-4
Berger, A. N., & Humphrey, D. B. (1997). Efficiency of financial institutions: International survey and directions for future research. European Journal of Operational Research, 98(2), 175–212. https://doi.org/10.1016/S0377-2217(96)00342-6
Berger, A. N., & Mester, L. J. (1997). Inside the black box: What explains differences in the efficiencies of financial institutions? Journal of Banking and Finance. https://doi.org/10.1016/S0378-4266(97)00010-1
Blejer, M. I. (2006). Economic growth and the stability and efficiency of the financial sector. Journal of Banking & Finance, 30(12), 3429–3432. https://doi.org/http://dx.doi.org/10.1016/j.jbankfin.2006.06.001
Casu, B., & Molyneux, P. (2003). A comparative study of efficiency in European banking. Applied Economics, 35(17), 1865–1876. https://doi.org/10.1080/0003684032000158109
Chauhan, R., & Kaur, H. (2015). Predictive Analytics and Data Mining. In Business Intelligence. https://doi.org/10.4018/978-1-4666-9562-7.ch019
Chortareas, G. E., Girardone, C., & Ventouri, A. (2011). Financial frictions, bank efficiency and risk: Evidence from the eurozone. Journal of Business Finance and Accounting. https://doi.org/10.1111/j.1468-5957.2010.02226.x
Ding, H., Wang, Z., & Wu, Y. (2017). Tobit regression model with parameters of increasing dimensions. Statistics and Probability Letters. https://doi.org/10.1016/j.spl.2016.09.006
E U RO P E A N C E N T R A L B A N K FINANCIAL STABILITY REVIEW dECEmBER 2009. (2009), (dECEmBER).
Eichengreen, B., & Baldwin, R. (2008). What G20 leaders must do to stabilise our economy and fix the financial system. VoxEU. org Publication. Retrieved from http://www.voxeu.org/reports/G20_Summit.pdf
Eyceyurt Batir, T., Volkman, D. A., & Gungor, B. (2017b). Determinants of bank efficiency in Turkey: Participation banks versus conventional banks. Borsa Istanbul Review, 17(2), 86–96. https://doi.org/10.1016/j.bir.2017.02.003
Fan, L., & Shaffer, S. (2004). Efficiency versus risk in large domestic US banks. Managerial Finance, 30(9), 1–19. https://doi.org/10.1108/03074350410769245
George Assaf, A., Matousek, R., & Tsionas, E. G. (2013). Turkish bank efficiency: Bayesian estimation with undesirable outputs. Journal of Banking and Finance, 37(2), 506–517. https://doi.org/10.1016/j.jbankfin.2012.09.009
Grigorian, D. A., & Manole, V. (2002). Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis. IMF Working Papers. https://doi.org/10.5089/9781451856651.001
Hasan, I., Wachtel, P., & Zhou, M. (2009). Institutional development, financial deepening and economic growth: Evidence from China. Journal of Banking and Finance. https://doi.org/10.1016/j.jbankfin.2007.11.016
Havrylchyk, O. (2006). Efficiency of the Polish banking industry: Foreign versus domestic banks. Journal of Banking and Finance. https://doi.org/10.1016/j.jbankfin.2005.07.009
Isik, I., & Hassan, M. K. (2002a). Cost and profit efficiency of the turkish banking industry: An empirical investigation. Financial Review, 37(2), 257–279. https://doi.org/10.1111/1540-6288.00014
Isik, I., & Hassan, M. K. (2002b). Technical, scale and allocative efficiencies of Turkish banking industry. Journal of Banking and Finance, 26(4), 719–766. https://doi.org/10.1016/S0378-4266(01)00167-4
Ismail, F., Shabri Abd. Majid, M., & Rahim, R. A. (2013). Efficiency of Islamic and conventional banks in Malaysia. Journal of Financial Reporting and Accounting. https://doi.org/10.1108/jfra-03-2013-0011
Iveta, ?. (2015). Banking Efficiency Determinants in the Czech Banking Sector. Procedia Economics and Finance, 23(October 2014), 191–196. https://doi.org/10.1016/S2212-5671(15)00367-6
Jiménez, G., & Saurina, J. (2006). Credit Cycles, Credit Risk, and Prudential Regulation. International Journal of Central Banking, 2(January), 65–98. https://doi.org/10.1227/01.NEU.0000349921.14519.2A
Karim, M. Z. A., Chan, S. G., & Hassan, S. (2010). Bank efficiency and non-performing loans: Evidence from malaysia and Singapore. Prague Economic Papers. https://doi.org/10.18267/j.pep.367
Liu, J. S., Lu, L. Y. Y., Lu, W. M., & Lin, B. J. Y. (2013). Data envelopment analysis 1978-2010: A citation-based literature survey. Omega (United Kingdom). https://doi.org/10.1016/j.omega.2010.12.006
Lozano-vivas, A. A. N. A., Pastor, J. T., & Pastor, J. M. (2016). An Efficiency Comparison of European Banking Systems Operating under Different Environmental Conditions. Journal of Productivity Analysis, 18(1), 59–77.
McCue, C., & McCue, C. (2015). Chapter 1 – Basics. In Data Mining and Predictive Analysis. https://doi.org/10.1016/B978-0-12-800229-2.00001-8
Mester, L. J. (1996). A study of bank efficiency taking into account risk-preferences. Journal of Banking and Finance. https://doi.org/10.1016/0378-4266(95)00047-X
Mohamad Noor, M., & Nor Hayati, A. (2012). The Determinants of World Islamic Banks’ Efficiency: Does Country Income Level have an Impact?? Journal of Islamic Economics, Banking and Finance.
Mokhtar, H. S. A., Abdullah, N., & Alhabshi, S. M. (2007). Technical and Cost Efficiency of Islamic Banking in Malaysia. Review of Islamic Economics.
Omankhanlen, Alex, E. (2012). The Role of Banks in Capital Formation and Economic Growth: The Case of Nigeria. Economy Transdisciplinarity Cognition, 5(103), 103–112. Retrieved from www.ugb.ro/etc
Pasiouras, F. (2008a). Estimating the technical and scale efficiency of Greek commercial banks: The impact of credit risk, off-balance sheet activities, and international operations. Research in International Business and Finance, 22(3), 301–318. https://doi.org/10.1016/j.ribaf.2007.09.002
Pasiouras, F. (2008b). Estimating the technical and scale efficiency of Greek commercial banks: The impact of credit risk, off-balance sheet activities, and international operations. Research in International Business and Finance, 22(3), 301–318. https://doi.org/10.1016/j.ribaf.2007.09.002
Peek, J., & Rosengren, E. S. (2012). The Role of Banks in the Transmission of Monetary Policy. In The Oxford Handbook of Banking. https://doi.org/10.1093/oxfordhb/9780199640935.013.0010
Psillaki, M., Tsolas, I. E., & Margaritis, D. (2010). Evaluation of credit risk based on firm performance. European Journal of Operational Research, 201(3), 873–881. https://doi.org/10.1016/j.ejor.2009.03.032
Rosman, R., Wahab, N. A., & Zainol, Z. (2014). Efficiency of Islamic banks during the financial crisis: An analysis of Middle Eastern and Asian countries. Pacific Basin Finance Journal. https://doi.org/10.1016/j.pacfin.2013.11.001
Saha, A., Ahmad, N. H., & Dash, U. (2015). Drivers of technical efficiency in Malaysian banking: A new empirical insight. Asian-Pacific Economic Literature, 29(1), 161–173. https://doi.org/10.1111/apel.12091
Sufian, F., Akbar, M., & Mohamad, N. (2009). The determinants of Islamic banks’ efficiency changes Empirical evidence from the MENA and Asian banking sector. International Journal of Islamic and Middle Eastern Finance and Management, 2(2), 120–138. https://doi.org/10.1108/17538390910965149
Thoraneenitiyan, N., & Avkiran, N. K. (2009). Measuring the impact of restructuring and country-specific factors on the efficiency of post-crisis East Asian banking systems: Integrating DEA with SFA. Socio-Economic Planning Sciences. https://doi.org/10.1016/j.seps.2008.12.002
Toçi, V. Z. (2009). Efficiency of banks in South-East Europe?: With special reference to Kosovo. Central Bank of Kosovo Working Paper, (4).
Vu, H., & Nahm, D. (2013). The determinants of profit efficiency of banks in Vietnam. Journal of the Asia Pacific Economy. https://doi.org/10.1080/13547860.2013.803847
Wahab N., Rosman R., dhe Z. Z. (2017). HOW EFFICIENT WERE ISLAMIC BANKS DURING THE FINANCIAL CRISIS?? EMPIRICAL EVIDENCE FROM ASIAN. Intellectual Economics, 11(1), 44–62. https://doi.org/10.13165/IE-17-11-1-04
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Published
2021-06-13
How to Cite
Sahiti, A., & Sahiti, A. (2021). The commercial banks’ credit risk efficiency: Empirical evidence from Kosovo. Journal of Eastern European and Central Asian Research (JEECAR), 8(2), 240–254. https://doi.org/10.15549/jeecar.v8i2.635
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