Bad luck or bad management? emerging banking market experience
AbstractA large number of bank failures occurred in transition countries during the 1990s and at the beginning of the 2000s. These were related to increases in non-performing loans and deteriorated cost efficiency of banks. This paper addresses the question of the causality between non-performing loans and cost efficiency in order to examine whether either of these factors is the deep determinant of bank failures. We extend the Granger-causality model developed by [Berger, A., DeYoung, R., 1997. Problem loans and cost efficiency in commercial banks. J. Banking Finance 21, 849-870] by applying GMM dynamic panel estimators on a panel of Czech banks between 1994 and 2005. Our findings support the bad management hypothesis, according to which deteriorations in cost efficiency precede increases in non-performing loans. Banking supervisors should consequently focus on enhanced cost efficiency of banks in order to reduce the likelihood of bank failures in transition countries.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/14305.
Date of creation: 2008
Date of revision:
Publication status: Published in: Journal of Financial Stability (2008) v.4,p.135-148
Other versions of this item:
- Podpiera, Jiri & Weill, Laurent, 2008. "Bad luck or bad management? Emerging banking market experience," Journal of Financial Stability, Elsevier, vol. 4(2), pages 135-148, June.
- Jiri Podpiera & Laurent Weill, 2007. "Bad Luck or Bad Management? Emerging Banking Market Experience," Working Papers 2007/5, Czech National Bank, Research Department.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
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