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Do non-performing loans impact bank efficiency?

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  • Phung, Quang Thanh
  • Van Vu, Huong
  • Tran, Huy Phuoc

Abstract

This paper examines the impact of non-performing loans on bank efficiency and the mitigating effect of bank capitalisation. By employing U.S. commercial banks data from 1994 to 2018, we adopt an advance Data Envelopment Analysis (DEA) method to estimate bank efficiency and find a negative relationship between non-performing loans and bank efficiency. Banks holding a stronger capitalisation or belonging to the banking group could reduce the impact of non-performing loans on bank efficiency. It is suggested that the banking business group could help banks to increase efficiency via its internal capital market.

Suggested Citation

  • Phung, Quang Thanh & Van Vu, Huong & Tran, Huy Phuoc, 2022. "Do non-performing loans impact bank efficiency?," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321003937
    DOI: 10.1016/j.frl.2021.102393
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    Cited by:

    1. Maria Celia López-Penabad & Ana Iglesias-Casal & José Fernando Silva Neto & José Manuel Maside-Sanfiz, 2023. "Does corporate social performance improve bank efficiency? Evidence from European banks," Review of Managerial Science, Springer, vol. 17(4), pages 1399-1437, May.
    2. Jiajia, Liu & Kun, Guo & Fangcheng, Tang & Yahan, Wang & Shouyang, Wang, 2023. "The effect of the disposal of non-performing loans on interbank liquidity risk in China: A cash flow network-based analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 105-119.

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    More about this item

    Keywords

    Bank efficiency; Non-performing loans; Bank capitalisation; Multi-bank holding companies; Fuzzy multi-objective two-stage data envelopment analysis;
    All these keywords.

    JEL classification:

    • 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
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

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