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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.

Suggested Citation

  • Kent Matthews, 2011. "Risk Management and Managerial Efficiency in Chinese Banks: A Network DEA Framework," Working Papers 102011, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:102011
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    References listed on IDEAS

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    More about this item

    Keywords

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

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • 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

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