Monitoring Bank Performance in the Presence of Risk

Abstract

This paper devises management and accounting tools for monitoring bank performance. We first propose a multidimensional efficiency measure that integrates credit risk and is adapted to the real banking technology. Second, traditional accounting ratios complement the analysis. Third, the impact of different risk measures over efficiency and accounting ratios is shown. Fourth, we examine the effect of CEO turnover on future performance. An empirical application considers a unique dataset of Costa Rican banks during 1998-2007. Results reveal that performance improvements follow regulatory changes and that risk explains differences in performance. Non-performing loans negatively affect efficiency and return on assets, whereas the capital adequacy ratio positively affects the net interest margin. This supports that incurring monitoring costs and having higher levels of capitalisation may enhance performance. Finally, results confirm that appointing CEOs from outside the bank significantly improves performance, thus suggesting the potential benefits of new organisational practices.

Relationship between Credit Risk Management and the Performance of Money Deposit Banks in Nigeria

“…The increase in non-performing loan over time would cause 3.5% lower in return on equity. The negative relationship between NPLR and ROE are in accordance with most of the previous researches which are conducted in one specific country, including the one conducted by Kargi (2011) in Nigeria, one conducted by Epure & Lafuente (2012) in Costa-Rican banking industry, one conducted by Ara, Bakaeva & Sun (2009) in Sweden and one conducted by Felix & Claudine (2008). All the mentioned researchers have found an inverse relationship between the NPLR and ROE.…”

Does Credit Risk Management affect the Financial Performance of Commercial Banks in Kosovo?

“…For financial institutions it is very important to practice good and credit risk management. The risk that a business partner fails to meet its obligations in full and on the due date or at any time, present a risk that affect all aspects of the business (Epure and Lafuente, 2013). And for this, the supervisors of financial institutions pay special attention, because such risk is likely to cause the bankruptcy of the bank.…”