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Risk Management and Managerial Efficiency in Chinese Banks: A Network DEA Framework

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  • Kent Matthews

    (Cardiff University and Hong Kong Institute for Monetary Research)

Abstract

Risk Management in Chinese banks has traditionally been the Cinderella of its internal functions. Political stricture and developmental imperative have often overridden standard practice of risk management resulting in large non-performing loan (NPL) ratios. One of the stated aims of opening up the Chinese banks to foreign strategic investment is the development of risk management functions. In recent years NPL ratios have declined through a mixture of recovery, asset management operation and expanded balance sheets. However, the training and practice of risk managers remain second class compared with foreign banks operating in China. This paper evaluates bank performance using a Network DEA approach where an index of risk management practice and an index of risk management organisation are used as intermediate inputs in the production process. The two indices are constructed from a survey of risk managers in domestic banks and foreign banks operating in China. The use of network DEA can aid the manager in identifying the stages of production that need attention.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 102011.

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Length: 37 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:hkm:wpaper:102011

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Keywords: Risk Management; Risk Organisation; Managerial Efficiency; Network DEA;

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References

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  1. Fare, Rolf & Grosskopf, Shawna, 2000. "Network DEA," Socio-Economic Planning Sciences, Elsevier, vol. 34(1), pages 35-49, March.
  2. Berger, Allen N. & DeYoung, Robert, 1997. "Problem loans and cost efficiency in commercial banks," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 849-870, June.
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  7. Tone, Kaoru & Tsutsui, Miki, 2009. "Network DEA: A slacks-based measure approach," European Journal of Operational Research, Elsevier, vol. 197(1), pages 243-252, August.
  8. Pastor, Jesus T. & Ruiz, Jose L. & Sirvent, Inmaculada, 1999. "A statistical test for detecting influential observations in DEA," European Journal of Operational Research, Elsevier, vol. 115(3), pages 542-554, June.
  9. Chen, Yao & Liang, Liang & Zhu, Joe, 2009. "Equivalence in two-stage DEA approaches," European Journal of Operational Research, Elsevier, vol. 193(2), pages 600-604, March.
  10. Kao, Chiang & Hwang, Shiuh-Nan, 2008. "Efficiency decomposition in two-stage data envelopment analysis: An application to non-life insurance companies in Taiwan," European Journal of Operational Research, Elsevier, vol. 185(1), pages 418-429, February.
  11. Cook, Wade D. & Liang, Liang & Zhu, Joe, 2010. "Measuring performance of two-stage network structures by DEA: A review and future perspective," Omega, Elsevier, vol. 38(6), pages 423-430, December.
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Cited by:
  1. Liu, John S. & Lu, Louis Y.Y. & Lu, Wen-Min & Lin, Bruce J.Y., 2013. "A survey of DEA applications," Omega, Elsevier, vol. 41(5), pages 893-902.
  2. Lau, Kwok Hung, 2013. "Measuring distribution efficiency of a retail network through data envelopment analysis," International Journal of Production Economics, Elsevier, vol. 146(2), pages 598-611.
  3. Asmild, Mette & Matthews, Kent, 2012. "Multi-directional efficiency analysis of efficiency patterns in Chinese banks 1997–2008," European Journal of Operational Research, Elsevier, vol. 219(2), pages 434-441.
  4. Wang, Ke & Huang, Wei & Wu, Jie & Liu, Ying-Nan, 2014. "Efficiency measures of the Chinese commercial banking system using an additive two-stage DEA," Omega, Elsevier, vol. 44(C), pages 5-20.
  5. repec:cmj:journl:y:2013:i:27:popovicimc is not listed on IDEAS

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