Stressed assets, off-balance sheet business activities and performance of Indian banking sector: a DEA double bootstrap approach

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammad Shahid Zaman ◽  
Anup Kumar Bhandari
Keyword(s):  
Technical Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Balance Sheet ◽  
Capital Adequacy ◽  
Bank Efficiency ◽  
Content Type ◽  
Bootstrap Approach ◽  
Double Bootstrap ◽  
Indian Banks

Purpose This paper examines the technical efficiency (TE) of Indian commercial banks during 1998–2015. Design/methodology/approach This study uses mathematical programming-based data envelopment analysis (DEA) methodology to measure technical efficiency of Indian banks. Further, Simar and Wilson (2007) double bootstrap procedure is applied to examine the determinants of efficiency of the Indian banks, by examining the effects of various bank specific and other contextual variables. Findings The results indicate substantial upward bias in the conventional efficiency estimates of the Indian commercial banks. Needless to note, such upward bias is consistent with the theoretical postulates. The bootstrapped regression results show that increasing capital adequacy ratio is positively associated with bank efficiency. The popular belief that non-performing assets have a dampening effect on performance of banks is validated. Among others, ownership category is observed to be an important determining factor of bank efficiency. Specifically, state-owned banks (SOBs) are relatively lagging behind the foreign banks. Moreover, larger banks are observed to have a significantly higher level of efficiency, therefore, recent official policy initiatives toward consolidation of SOBs are validated. Originality/value As this study uses Simar and Wilson (2007) bootstrap approach, it enables the authors to have an estimate of the extent of bias in the traditional DEA TE scores. It also helps us drawing consistent inferences by rectifying the problem of serial correlation in the conventional second stage regression in this regard.

Shadow banking from China's perspective: an empirical analysis of bank-issued wealth management products

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Syed Mehmood Raza Shah ◽  
Qiang Fu ◽  
Ghulam Abbas ◽  
Muhammad Usman Arshad
Keyword(s):  
Commercial Banks ◽  
Fixed Effects ◽  
Banking Sector ◽  
Balance Sheet ◽  
Estimation Method ◽  
Least Square ◽  
Shadow Banking ◽  
Content Type ◽  
Wealth Management ◽  
Chinese Banks

PurposeWealth Management Products (WMPs) are the largest and most crucial component of China's Shadow banking, which are off the balance sheet and considered as a substitute for deposits. Commercial banks in China are involved in the issuance of WMPs mainly to; evade the regulatory restrictions, move non-performing loans away from the balance sheet, chase the profits and take advantage of yield spread (the difference between WMPs yield and deposit rate).Design/methodology/approachIn this study, the authors investigate what bank related characteristics and needs; influenced and prompted the issuance of WMPs. By using a quarterly panel data from 2010 to 2019, this study performed the fixed effects approach favored by the Hausman specification test, and a feasible generalized least square (FGLS) estimation method is employed to deal with any issues of heteroscedasticity and auto-correlation.FindingsThis study found that there is a positive and significant association between the non-performing loan ratio and the issuance of WMPs. Moreover, profitability and spread were found to play an essential role in the issuance of WMPs. The findings of this study suggest that WMPs are issued for multi-purpose, and off the balance sheet status of these products makes them very lucrative for regulated Chinese commercial banks.Research limitations/implicationsNon-guaranteed WMPs are considered as an item of shadow banking in China, as banks do not consolidate this type of WMPs into their balance sheet; due to that reason, there is no individual bank data available for the amount of WMPs. The authors use the number of WMPs issued by banks as a proxy for the bank's exposure to the WMPs business.Practical implicationsFrom a regulatory perspective, this study helps regulators to understand the risk associated with the issuance of WMPs; by providing empirical evidence that Chinese banks issue WMPs to hide the actual risk of non-performing loans, and this practice could mislead the regulators to evaluate the bank credit risk and loan quality. This study also identifies that Chinese banks issue WMPs for multi-purpose; this can help potential investors to understand the dynamics of WMPs issuance.Originality/valueThis research is innovative in its orientation because it is designed to investigate the less explored wealth management products (WMPs) issued by Chinese banks. This study's content includes not only innovation but also contributes to the existing literature on the shadow banking sector in terms of regulatory arbitrage. Moreover, the inclusion of FGLS estimation models, ten years of quarterly data, and the top 30 Chinese banks (covers 70% of the total Chinese commercial banking system's assets) make this research more comprehensive and significant.

Swiss policy turn may dampen Polish consumption

2015 ◽  
Keyword(s):  
Central Europe ◽  
Banking Sector ◽  
Balance Sheet ◽  
Capital Adequacy ◽  
Financial Risks ◽  
Short Term ◽  
The Czech Republic ◽  
Content Type ◽  
Credit Portfolio ◽  
The Impact

Subject The impact on Central Europe of the reverse in Swiss monetary policy. Significance The Swiss National Bank's (SNB) decision in January to scrap its exchange-rate peg against the euro raised concerns about a mortgage repayment crisis and lending practices in Central Europe (CE). Banks across the region are well capitalised on the whole, and better placed to absorb the impact of financial risks arising from the decision than those of countries further south-east, where deleveraging has continued. Banks in the Czech Republic and Hungary are the least exposed to foreign exchange (FX) risk; those in Poland are the most exposed. Impacts Poland's capital-adequacy ratios and strong credit portfolio will offset balance-sheet risks, but profits may fall in the short term. Hungary's banking sector is under heavy strain as a result of the government's FX debt relief programme. However, the Funding for Growth Scheme, and high forint and FX reserves, provide a liquidity buffer. Czech banks are CE's most profitable and liquid and will not be affected owing to tiny exposure to Swiss franc denominated loans.

Cost efficiency analysis of scheduled commercial banks: empirical evidence from India

2018 ◽  
Vol 37 (7) ◽  
pp. 586-602
Author(s):  
Aparna Bhatia ◽  
Megha Mahendru
Keyword(s):  
Cost Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Allocative Efficiency ◽  
Specific Reference ◽  
Tobit Regression ◽  
Content Type ◽  
Cost Inefficiency ◽  
Indian Banks

Purpose The purpose of this paper is to analyze and evaluate cost efficiency (CE) scores of Indian Scheduled Commercial Banks (SCBs) in India over a period of 22 years, i.e. 1991–1992 to 2012–2013. Design/methodology/approach Data envelopment analysis (DEA) – a non-parametric approach is used to calculate efficiency scores of banks. Further the efficiency scores are decomposed into technical and allocative efficiency. The differences in the efficiency scores across ownership as well as across reformatory and post-reformatory era are examined by applying Panel Tobit Regression. Findings The paper also identifies the reason for cost inefficiency among Indian banks. In addition, the nature of their return to scale of all SCBs has also been evaluated. The results of the paper depict that Indian SCBs have never achieved full CE score of 1 in any of the years of study. The dominant reason identified behind cost inefficiency is allocative inefficiency. Surprisingly, the results also highlight that SCBs exhibit higher CE scores in reformatory era as compared to the post-reformatory era. Originality/value With specific reference to India, even lesser literature is found on CE. Indian banking sector has witnessed many changes on account of liberalization, privatization and globalization (LPG). Before banks adapted to the new environment, the global financial crisis acted as a fuel to fire affecting the performance of banks. Thus, a reassessment over a longer period would help to know a wholistic view of the issue of cost inefficiency, which has always been a troubling factor for Indian banks.

Modeling asset allocation and liability composition for Indian banks

2014 ◽  
Vol 40 (7) ◽  
pp. 700-723 ◽  
Author(s):  
P.K. Viswanathan ◽  
M. Ranganatham ◽  
G. Balasubramanian
Keyword(s):  
Sensitivity Analysis ◽  
Goal Programming ◽  
Asset Allocation ◽  
Banking Sector ◽  
Programming Model ◽  
Balance Sheet ◽  
Model Framework ◽  
Content Type ◽  
Goal Programming Model ◽  
Indian Banks

Purpose – Asset liability management is a multi-dimensional set of activities. Against this backdrop, the purpose of this paper is to build a goal programming model for optimally determining the asset allocation and liability composition for Indian Banks. Design/methodology/approach – The conceptual model framework has been developed and then tested for four banks that typically represent the Indian banking sector. Published balance sheet data were used for the model that span over 1995-2009. The veracity of the model has been tested in terms of its ability to project the optimum asset allocation and liability composition for the year 2010. Findings – The model has been able to generate the optimum asset and liability mix that meets the goals set on the key drivers. The solution provided is realistic and compatible with the actual figures. Sensitivity analysis including current and savings account and interest rate changes has been successfully performed to study impact they cause on profitability. Research limitations/implications – The model provides an overall approach to asset allocation and liability composition based on past data reflecting the preferences and priorities of the banks with regard to their outlook on setting targets. This may change. The variables like return and risk are stochastic in nature. Practical implications – The model demonstrated in this paper would be useful to the policy makers in any bank for decision support and planning in view of its ability to incorporate a large number of constraints. Changes in profit could be instantaneously captured through sensitivity analysis. Originality/value – The goal programming model used here is invariant to the type of bank and year of consideration.

Does capital adequacy ratio influence risk-taking behaviour of conventional and Islamic banks differently? Empirical evidence from dual banking system of Malaysia

2020 ◽  
Vol 11 (9) ◽  
pp. 1989-2015
Author(s):  
Rafik Harkati ◽  
Syed Musa Alhabshi ◽  
Salina Kassim
Keyword(s):  
Empirical Evidence ◽  
Risk Taking ◽  
Commercial Banks ◽  
Banking Sector ◽  
Ordinary Least Squares ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Islamic Banks ◽  
Content Type ◽  
Capital Adequacy Ratio

Purpose The purpose of this study is to investigate the influence of capital adequacy ratio (CAR) prescribed in Basel III on the risk-taking behaviour of Islamic and conventional commercial banks in Malaysia. It also investigates the claim that the risk-taking behaviour of Islamic banks (IBs) and conventional banks (CBs) managers is identically influenced by CAR. Design/methodology/approach Secondary data for all CBs operating in the Malaysian banking sector are gathered from FitchConnect database for the 2011–2017 period. Both dynamic ordinary least squares and generalised method of moments techniques are used to estimate a panel data of 43 commercial banks, namely, 17 IBs and 26 CBs. Findings The findings of this study lend support to the favourable influence of CAR set in Basel III accord on risk-taking behaviour of both types of banks. CBs appeared to be remarkably better off in terms of capital buffers. Evidence is established on the identicality of the risk-taking behaviour of IBs and CBs managers under CAR influence. Practical implications Even though a high CAR is observed to hamper risk-taking of banks, the findings may serve as a signal to regulators to be mindful of the implications of holding a high CAR. Similarly, managers may capitalise on the findings in terms of strategising for efficient use of the considerable capital buffers. Shareholders are also concerned about managers’ use of the considerable capital buffers. Originality/value This study is among a few studies that endeavoured to provide empirical evidence on the claim that IBs mimic the conduct of CBs in light of the influence of CAR prescribed in Basel III on risk-taking behaviour, particularly banks operating within the same banking environment.

Non-performing assets and technical efficiency of Indian banks: a meta-frontier analysis

2018 ◽  
Vol 25 (7) ◽  
pp. 2105-2125 ◽  
Author(s):  
Nitin Arora ◽  
Nidhi Grover Arora ◽  
Kritika Kanwar
Keyword(s):  
Technical Efficiency ◽  
Commercial Banks ◽  
Banking Industry ◽  
Efficiency Score ◽  
Commercial Banking ◽  
Foreign Banks ◽  
Undesirable Output ◽  
Content Type ◽  
Frontier Analysis ◽  
Indian Banks

Purpose The issue of mounting non-performing assets (NPAs) in Indian banking industry is serious and attracting attention of academia and policy planners. Thus, the purpose of this paper is to test the hypothesis whether NPAs in Indian commercial banking have reached at alarming state where they start affecting the technical efficiency levels adversely or not. Design/methodology/approach The efficiency score have been computed using case model (model with NPAs as bad/undesirable output) vs control model (model without NPAs as bad/undesirable output) methodology under meta-frontier data envelopment analysis framework. Findings It has been noticed that the effect of NPAs on overall technical efficiency and its various components is insignificant. The comparison of the case models (i.e. model with NPAs as bad output) with the control models (i.e. model without NPAs) reveals insignificant difference in average efficiency scores and rank distribution of commercial banks. The major source of inefficiency is technology gap (i.e. structure, setup and objectives of banking) among public, domestic private and foreign private categories of banks. Practical implications Though NPAs are increasing in Indian banking industry and specifically in Indian public sector banks because of their compulsory lending to priority sector yet the banks have huge scope to extend credit to priority sector as the NPAs have not reached at alarming stage where they start affecting adversely the efficiency performance. Originality/value Given the fact that the banking penetrations, structure and objectives differ significantly across ownership, separate frontiers for each ownership (public, private and foreign banks) category has been used to evaluate the technical efficiency levels of 81 commercial banks operating in India over the period 2005 to 2013.

scholarly journals Resilience of commercial banks of Bangladesh to the shocks caused by COVID-19 pandemic: an application of MCDM-based approaches

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ratan Ghosh ◽  
Farjana Nur Saima
Keyword(s):  
Commercial Banks ◽  
Banking Sector ◽  
Stock Exchange ◽  
Multiple Criteria Decision Making ◽  
Capital Adequacy ◽  
Negative Effects ◽  
Content Type ◽  
Economic Event ◽  
Low Performance ◽  
Credit Portfolio

PurposeThe purpose of this study is to analyze and forecast the financial sustainability and resilience of commercial banks of Bangladesh in response to the negative effects of COVID-19 pandemic.Design/methodology/approachEighteen publicly listed commercial banks of Dhaka Stock Exchange (DSE) have been taken as a sample for this study. To measure the riskiness of banks' credit portfolio, nine industries of DSE have been considered to determine probable loss of revenue arising from the COVID-19 pandemic shock. Moreover, two commonly used multiple-criteria-decision-making (MCDM) tools namely TOPSIS method and HELLWIG method have been used for analyzing the data.FindingsBased on the performance scores under TOPSIS and HELLWIG method, banks are categorized into three groups (six banks each) namely top resilient, moderate resilient and low resilient. It is found that EBL and DBBL are the most resilient banks, and ONEBANK is the worst resilient bank in Bangladesh in managing the COVID-19 pandemic shock.Research limitations/implicationsThis study concludes that banks with low capital adequacy, low liquidity ratio, low performance and higher NPLs are more vulnerable to the shocks caused by the COVID-19 pandemic. The management of commercial banks should emphasize on maintaining higher capital base and reducing default loans.Originality/valueResilience of the Bangladeshi banking sector under any adverse economic event has been examined by only using stress testing approach. This study is empirical evidence where both TOPSIS and HELLWIG MCDM methods have been used to make the result conclusive.

The intellectual capital performance of the Indian banking sector

2007 ◽  
Vol 8 (1) ◽  
pp. 96-123 ◽  
Author(s):  
G. Barathi Kamath
Keyword(s):  
Intellectual Capital ◽  
Banking Sector ◽  
Measurement Techniques ◽  
Balance Sheet ◽  
Value Added ◽  
Policy Implications ◽  
Specific Reference ◽  
Content Type ◽  
Domestic Banks ◽  
Indian Banks

PurposeThe paper seeks to estimate and analyze the Value Added Intellectual Coefficient (VAIC™) for measuring the value‐based performance of the Indian banking sector for a period of five years from 2000 to 2004.Design/methodology/approachAnnual reports, especially the profit/loss account and balance‐sheet of the banks concerned for the relevant years, were used to obtain the data. A review is conducted of the international literature on intellectual capital with specific reference to literature that reviews measurement techniques and tools, and the VAIC™ method is applied in order to analyze the data of Indian banks for the five‐year period. The intellectual or human capital (HC) and physical capital (CA) of the Indian banking sector is analysed and their impact on the banks' value‐based performance is discussed.FindingsThe study confirms the existence of vast differences in the performance of Indian banks in different segments, and there is also an improvement in the overall performance over the study period. There is an evident bias in favour of the performance of foreign banks compared with domestic banks.Research limitations/implicationsAll 98 scheduled commercial banks are studied as per the information provided by the Reserve Bank of India (RBI)/India's Apex bank. Regional rural banks (RRBs), a segment of the indian banking sector, are not dealt with in the study since their number is large (more than 200), but they contribute only 3 percent of the market of Indian banks. This paper is a landmark in Indian banking history as it approaches performance measurement with a new dimension.Practical implicationsThe paper has strong theoretical foundations, which have a proven record and applications. The methodology adopted has been research tested. Domestic banks in India are provided with a new dimension to understand and evaluate their performance and benchmark it with global standards. The paper also has policy implications, as it reflects the lop‐sided growth of a few sections in the Indian banking segment.Originality/valueThe paper represents a pioneering and seminal attempt to understand the implications of the business performance of the Indian banking sector from an intellectual resource perspective.

scholarly journals Investigation on firm efficiency: evidence from selected Asia-Pacific countries

2018 ◽  
Vol 25 (8) ◽  
pp. 3062-3080 ◽  
Author(s):  
Khar Mang Tan ◽  
Fakarudin Kamarudin ◽  
Amin Noordin Bany-Ariffin ◽  
Norhuda Abdul Rahim
Keyword(s):  
Technical Efficiency ◽  
Small Firms ◽  
Banking Sector ◽  
Profit Maximization ◽  
Asia Pacific ◽  
Scale Efficiency ◽  
Scale Level ◽  
Firm Efficiency ◽  
Content Type ◽  
Parametric Data

Purpose The purpose of this paper is to examine the firm efficiency or technical efficiency (TE), pure technical efficiency (PTE) and scale efficiency (SE) in the selected developed and developing Asia-Pacific countries. Design/methodology/approach The sample consists of a sum of 700 firms in selected developed and developing Asia-Pacific countries over the period from 2009 to 2015. The non-parametric data envelopment analysis under the production approach is used to investigate firm efficiency. Findings On average, this paper discovers that the firms in selected Asia-Pacific countries are moderately efficient. Scale inefficiency (SIE) is found to be the dominant source of firms’ technical inefficiency. The analysis of return to scale shows that the large firms tend to operate at decreasing return to scale level, while the small firms tend to operate at increasing return to scale level. Practical implications The findings from this paper provide significant insights to the policy makers and firm managers in promoting the efficient firms of Asia-Pacific countries. Originality/value The present paper conducts a critical analysis on return to scale in the firms sector of Asia-Pacific context, which is ignored by the past studies on firm efficiency since the analysis of return to scale is mostly emphasized on banking sector. The precise nature of SIE is important for a firm to be efficient in achieving the firm’s primary goals of profit maximization and sustaining market competitiveness.

scholarly journals Does the target market affect bank performance? Evidence from the geographic diversification of city commercial banks in China

2021 ◽  
Vol 15 (1) ◽  
Author(s):  
Xiaonan Li ◽  
Chang Song
Keyword(s):  
Commercial Banks ◽  
Banking Sector ◽  
Capital Adequacy ◽  
Bank Performance ◽  
Chinese Government ◽  
Target Market ◽  
Geographic Diversification ◽  
Cross Sectional ◽  
The Impact ◽  
Geographical Diversification

AbstractAfter the opening up of the banking sector to domestic and foreign capitals which is approved by the Chinese government, the China Banking Regulatory Commission (CBRC) has permitted city commercial banks to diversify geographically. Since this deregulation in 2006, city commercial banks began to geographically diversify to occupy the market and acquire more financial resources. To examine the causal relationship between geographical diversification and bank performance, we construct an exogenous geographical diversification instrument using the gravity-deregulation model and a policy shock. We find that bank geographical diversification negatively affects bank performance. Moreover, we conduct some mechanism tests in the Chinese context. We find that the target market with several large- and medium-sized banks and a high level of local protectionism in the target market decreases the performance of city commercial banks. Finally, cross-sectional analyses show that the impact of geographical diversification on banks’ performance is more notable among city commercial banks that are younger, and have a lower capital adequacy ratio and a higher non-performing loan ratio.

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