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Effects of Risk Parameters (Credit, Operational, Liquidity and Market Risk) on Banking System Efficiency (Studying 15 Top Banks in Iran)

Author

Listed:
  • Ebrahim Hoseininassab

    (Associate Professor, University of Tarbiat Modares, Department of Economics, Tehran, Iran)

  • Kazem Yavari

    (Associate Professor, University of Tarbiat Modares, Department of Economics, Tehran, Iran)

  • Nader Mehregan

    (Associate Professor, University of Hamedan, Department of Economics, Hamedan, Iran)

  • Reza Khoshsima

    (Ph.D. Student in Economics, University of Tarbiat Modares , Tehran, Iran, (Corresponding Author))

Abstract

This research, recognizing the importance of efficiency and risk as two fundamental important categories in banking industry, seeks to review the effectiveness of two popular models: parametric (SFA) method with economic basis and nonparametric (MEA) method with mathematical optimization basis to evaluate bank efficiency and rank and select an optimal model and also to identify the impact of credit, operational, market and liquidity risks on banking system efficiency. In this regard 15 banks were selected as statistical research community over the last six years (2005-2011). Using average performance provided by the above two methods, banks were ranked with Deap and Frontier software, and then to examine the presence or absence of significant correlation between the rankings provided by these two methods, the Pearson correlation coefficient was used. The results suggest differences in the two methods with regard to performance evaluation and ranking of banks, and show a relative superiority of SFA method, compared to MEA method. In addition, to examine the impact of efficiency on risk, for the four studied risks based on selected indicators, four models were estimated using econometric methods and the ordinary least squares (OLS). The results showed that each of the studied risks and their related indicator and their specific coefficient, significantly affect on efficiency.

Suggested Citation

  • Ebrahim Hoseininassab & Kazem Yavari & Nader Mehregan & Reza Khoshsima, 2013. "Effects of Risk Parameters (Credit, Operational, Liquidity and Market Risk) on Banking System Efficiency (Studying 15 Top Banks in Iran)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 18(1), pages 1-24, winter.
    • Handle: RePEc:eut:journl:v:18:y:2013:i:1:p:1
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    References listed on IDEAS

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    1. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    2. Beccalli, Elena, 2004. "Cross-country comparisons of efficiency: Evidence from the UK and Italian investment firms," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1363-1383, June.
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    Cited by:

    1. Ramarow, Sirivige, 2017. "The Relationship between Profitability and the Risk Factors and other Macroeconomic Factors," MPRA Paper 78625, University Library of Munich, Germany, revised 19 Apr 2017.
    2. Wong, Kah Wai, 2017. "The performance and risk of Hartalega Holdings Berhad," MPRA Paper 78342, University Library of Munich, Germany.

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