Stress Testing and Bank Efficiency

2015 ◽  
Vol 2 (2) ◽  
pp. 1-20 ◽  
Author(s):  
Iftekhar Hasan ◽  
Fotios Pasiouras
Keyword(s):  
Cross Section ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Stress Testing ◽  
Stress Test ◽  
Allocative Efficiency ◽  
Data Envelopment ◽  
Stress Tests ◽  
Bank Efficiency ◽  
European Banks

This study examines whether and how the stress testing of European banks in 2010, 2011, and 2014 is related to their technical, allocative, and cost efficiency. Using a sample of large commercial banks operating in 20 European countries, and Data Envelopment Analysis (DEA), the authors perform comparisons between banks that were included in one of the three European stress tests and untested banks operating in the same countries. They estimate various specifications as for the inputs and outputs, cross-section and pooled estimations, and they also examine alternative samples as for the ownership of banks. In general, the authors conclude that banks included in the stress-test exercises are more efficient that their counterparties. The differences tend to be statistically significant in the case of allocative efficiency and cost efficiency, but not in the case of technical efficiency. With regards to the latter form of efficiency, the results depend upon the specification and the stress test in question.

Lending Efficiency of Indian Commercial Banks: A Data Envelopment Approach

2006 ◽  
Vol 31 (2) ◽  
pp. 152-168
Author(s):  
Ram Pratap Sinha
Keyword(s):  
Public Sector ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Parametric Method ◽  
Returns To Scale ◽  
Allocative Efficiency ◽  
Commercial Banking ◽  
Data Envelopment ◽  
The Difference ◽  
Constant Returns To Scale

The lending environment in the Indian commercial banking industry changed considerably in the reform years following widening of priority sector definition, dismantling of Credit Authorisation Scheme and introduction of risk based supervision. In this context, the present paper attempts to compare the performances of commercial banks in the reform period in respect of lending (in a cost minimisation framework) making use of Data Envelopment Analysis – a non-parametric method which is quite suitable for making inter-(productive)unit comparison. The commercial banks have been assumed to obey constant returns to scale. The results obtained from the study are as under: (i) The observed private sector commercial banks exhibited higher mean cost efficiency than the observed public sector commercial banks. This is perhaps indicative of the problems that persist in the lending environment which caused the public sector commercial banks to shy away from lending. (ii) The difference in cost efficiency scores emanated mainly from differences in mean allocative efficiency scores exhibited by the two bank groups. Further, the observed commercial banks show considerable fluctuations in allocative efficiency scores across the years.

scholarly journals Credit Risk Stress Testing of Commercial Banks in Tunisia

2018 ◽  
Vol 1 (1) ◽  
pp. 10
Author(s):  
Amel Ben Youssef
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Fixed Effects ◽  
Stress Testing ◽  
Stress Test ◽  
Negative Relationship ◽  
Bank Loans ◽  
Economic Downturn ◽  
Stress Tests ◽  
Fixed Effects Model

<p><em>Stress tests of credit risk is greatly affected by data constraints in Tunisian banking system. Aiming to improve the assessment of credit risk in such conditions, we propose a model to conduct a macro stress test of credit risk for a sample of ten Tunisian commercial banks based on scenario analysis.</em></p><p><em>The approach consists first in explaining the credit risk for each bank in terms of macroeconomic and bank-specific variables through a static fixed effects model, second in a stress-testing exercise using the Monte Carlo Simulation for generating credit risk losses distributions in case of different scenarios and for determining unexpected losses for each bank. </em></p><p><em>The panel analysis applied suggests a robust negative relationship between the credit risk of bank loans and real GDP growth, with a lag response of four periods. In addition, return on assets ratio and bank size show significant negative effect on credit quality, while the net loans to total asset ratio is positively associated with it. </em></p><p><em>The credit risk stress testing results indicate that an adverse scenario of economic downturn produces increase of the frequency of the higher credit loss comparatively to the lower ones for all banks of the sample and that the estimated unexpected losses that would take place in a stress situation can be covered by available capital of these banks.</em></p>

Solvency stress testing of Islamic commercial banks

2016 ◽  
Vol 7 (2) ◽  
pp. 112-147 ◽  
Author(s):  
Jamshaid Anwar Chattha ◽  
Simon Archer
Keyword(s):  
Commercial Banks ◽  
Stress Testing ◽  
Profit Sharing ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Stress Tests ◽  
Regulatory Requirement ◽  
Content Type ◽  
Numerical Example ◽  
Remedial Actions

Purpose This paper aims to provide a methodology for designing and conducting solvency stress tests, under the standardised approach as per IFSB-15, including the establishment of macro-financial links, running scenarios with variation of assumptions and stress scenario parameters; apply and illustrate this methodology by providing a stylised numerical example through a tractable Excel-based framework, through which Islamic Commercial Banks (ICBs) can introduce additional regulatory requirements and show that they would remain in compliance with all capital requirements after a moderate to severe shock; and identify the potential remedial actions that can be envisaged by an ICB. Design/methodology/approach The paper uses the data of the one of the groups to which certain amendments and related assumptions are applied to develop a stylised numerical example for solvency stress-testing purposes. The example uses a Stress Testing Matrix (STeM; a step-by-step approach) to illustrate the stress-testing process. The methodology of the paper uses a two-stage process. The first stage consists of calculating the capital adequacy ratio (CAR) of the ICB using the IFSB formulae, depending on how the profit sharing investment account (PSIA) are treated in the respective jurisdiction. The second stage is the application of the stress scenarios and shocks. Findings Taking into account the specificities of ICBs such as their use of PSIA, the results highlighted the sensitivity of the CAR of an ICB with respect to the changes in the values of alpha and the proportion of unrestricted PSIA on the funding side. The simulation also indicated that an ICB operating above the minimum CAR could be vulnerable to shocks of various degrees of gravity, thus bringing the CAR below the minimum regulatory requirement and necessitating appropriate remedial actions. Practical implications The paper highlights various implications and relationships arising out of stress testing for ICBs, including the vulnerability of an ICB under defined scenarios, demanding appropriate immediate remedial actions on future capital resources and capital needs. The findings of the paper provide a preliminary discussion on developing a comprehensive toolkit for the ICBs similar to what is developed by the International Monetary Fund Financial Sector Assessment Programme. Originality/value This paper focuses on the gap with respect to the stress testing of capital adequacy. The main contribution of the paper is twofold. The first is the development of an STeM – a step-by-step approach, which provides a method for simulating solvency (i.e. capital adequacy) stress tests for ICBs; the second is the demonstration of the potentially crucial impact of profit-sharing investment accounts and the way they are managed by ICBs (notably the smoothing of profit payouts) in assessing the capital adequacy of the ICBs.

scholarly journals Cost efficiency of the Czech and Slovak banking sectors: an application of the data envelopment analysis

2016 ◽  
Author(s):  
Iveta Palecková
Keyword(s):  
Data Envelopment Analysis ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Banking Industry ◽  
Returns To Scale ◽  
Data Envelopment ◽  
Cost Efficient ◽  
The Cost ◽  
Variable Returns To Scale

The aim of the paper is to estimate the cost efficiency of the Czech and Slovak commercial banks within the period 2010-2014. For empirical analysis the Data Envelopment Analysis input-oriented model with variable returns to scale is applied on the data of the commercial banks. The intermediation approach is adopted to define the inputs and outputs. The Czech commercial banks are more cost efficient than Slovak commercial banks. The development of average cost efficiency is similar in the Czech and Slovak banking industry. The most efficient Czech banks are Ceská sporitelna and Sberbank in the Czech banking sector, the most efficient Slovak bank is Privatbanka with 100% efficiency.

scholarly journals Bad Debt and Cost Efficiency in Vietnamese Commercial Banks

2015 ◽  
Vol 22 (1) ◽  
pp. 125-140
Author(s):  
Vinh Nguyen Thi Hong
Keyword(s):  
Data Envelopment Analysis ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Direct Relationship ◽  
Data Envelopment ◽  
Dea Method ◽  
Two Stages ◽  
The Cost ◽  
The Relationship ◽  
Bad Debt

The paper aims at exploring the relationship between bad debt and cost efficiency in Vietnamese commercial banks in the years 2007 – 2013. The research includes two stages: (i) Measuring the cost efficiency of banks by non-parameter Data Envelopment Analysis (DEA) method suggested by Coelli (2005); and (ii) Applying the Tobit model to identify two-way effects of bad debt and bank cost efficiency. The results show that the cost efficiency in Vietnamese commercial banks is 52.6% and there exists a direct relationship between bad debt and cost efficiency.

Abstract 17369: Addressing Missed Opportunities for Cardiometabolic Primary Prevention of Veterans Referred for Stress Testing

Circulation ◽  
2020 ◽  
Vol 142 (Suppl_3) ◽  
Author(s):  
Ysanne Johnson ◽  
Sheila M Mattei ◽  
Matthew Burg ◽  
Judith L Meadows
Keyword(s):  
Risk Reduction ◽  
Stress Testing ◽  
Stress Test ◽  
Standard Of Care ◽  
Low Risk ◽  
Stress Tests ◽  
Missed Opportunities ◽  
Presenting Symptoms ◽  
Reduction Strategies ◽  
Risk Reduction Strategies

Introduction: Patients presenting to stress testing have a high prevalence of cardiometabolic risk factors (RF) which are not at guideline supported goals. Referral to stress testing is often a patient’s first presentation to CV care and represents a missed opportunity for delivery of risk reduction strategies. Hypothesis: Implementation of a cardiometabolic prevention initiative for cardiology-naïve patients referred to stress testing will result in improved delivery of guideline-directed prevention care. Methods: A consecutive prospective cohort of patients who underwent stress testing (12/1/2019-1/31/2020) after implementation of a linked cardiometabolic prevention referral for those with low risk stress tests was compared to a retrospective standard of care (SOC) cohort (9/1/2019-10/1/2019) from a single center Veterans Hospital. Outcomes assessed were change in CV risk reduction care at 90 days following stress test. Results: Of 181 patients, 62.5% were naïve to cardiology specialty care, had >1 CV risk factor not meeting guideline goals, 6% had typical angina as presenting symptoms, and greater than 70% of stress tests were normal or low risk. Baseline CV RF were common and failed to reach goals in SOC and intervention cohorts respectively with LDL above goal (40 vs. 33%), stage 1 or greater hypertension (67 vs 81%), Diabetes with HgA1c > 7 (48 vs. 21%), overweight or obese (68 vs. 79%), current tobacco (11 vs. 12%), and elevated mean 10-year ASCVD risk (32 vs.20%). At 90 days, 28% of SOC cohort had intensification of CV prevention care as compared to 76% of intervention cohort (X 2 26.8, p<0.05). Conclusions: A stress testing setting represents a valuable opportunity to deliver cardiometabolic prevention care. Integration of risk reduction strategies is imperative to shift from cardiac disease management to patient centered health promotion.

Cost efficiency analysis of scheduled commercial banks: empirical evidence from India

2018 ◽  
Vol 37 (7) ◽  
pp. 586-602
Author(s):  
Aparna Bhatia ◽  
Megha Mahendru
Keyword(s):  
Cost Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Allocative Efficiency ◽  
Specific Reference ◽  
Tobit Regression ◽  
Content Type ◽  
Cost Inefficiency ◽  
Indian Banks

Purpose The purpose of this paper is to analyze and evaluate cost efficiency (CE) scores of Indian Scheduled Commercial Banks (SCBs) in India over a period of 22 years, i.e. 1991–1992 to 2012–2013. Design/methodology/approach Data envelopment analysis (DEA) – a non-parametric approach is used to calculate efficiency scores of banks. Further the efficiency scores are decomposed into technical and allocative efficiency. The differences in the efficiency scores across ownership as well as across reformatory and post-reformatory era are examined by applying Panel Tobit Regression. Findings The paper also identifies the reason for cost inefficiency among Indian banks. In addition, the nature of their return to scale of all SCBs has also been evaluated. The results of the paper depict that Indian SCBs have never achieved full CE score of 1 in any of the years of study. The dominant reason identified behind cost inefficiency is allocative inefficiency. Surprisingly, the results also highlight that SCBs exhibit higher CE scores in reformatory era as compared to the post-reformatory era. Originality/value With specific reference to India, even lesser literature is found on CE. Indian banking sector has witnessed many changes on account of liberalization, privatization and globalization (LPG). Before banks adapted to the new environment, the global financial crisis acted as a fuel to fire affecting the performance of banks. Thus, a reassessment over a longer period would help to know a wholistic view of the issue of cost inefficiency, which has always been a troubling factor for Indian banks.

scholarly journals Islamic Banks vs. Conventional Banks in Bangladesh: A Comparative Study Based on its Efficiency in Operation

2020 ◽  
Vol 4 (1) ◽  
pp. 29-37 ◽  
Author(s):  
Faisal Ahmad
Keyword(s):  
Data Envelopment Analysis ◽  
Technical Progress ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Productivity Index ◽  
Data Envelopment ◽  
Islamic Banks ◽  
Factor Productivity ◽  
Conventional Banks ◽  
Better Than

The main purpose of this study is to make a comparison between Islamic banks (IBs) and Conventional banks (CBs) in Bangladesh based on its efficiency in operation. The Data Envelopment Analysis (DEA) is employed under CRS and VRS approach, which allows for the decomposition of efficiency into technical, allocated and cost efficiency. The study also measures changes in productivity over the time as a result of technical progress by employing the Malmquist Total Factor Productivity Index. The results explain that the technical efficiency of IBs is better than that of CBs, but allocated and cost efficiency (CE) of IBs are higher than CBs. In Bangladesh there are 62 commercial banks included 8 Islamic Banks that are regulated by Bangladesh Bank (BB).  

scholarly journals Significance and Key Challenges in Conducting Stress Testing for Islamic Commercial Banks

2015 ◽  
Vol 1 (2) ◽  
pp. 085 ◽  
Author(s):  
Jamshaid Anwar Chattha
Keyword(s):  
Risk Management ◽  
Commercial Banks ◽  
Financial Stability ◽  
Stress Testing ◽  
Global Financial Crisis ◽  
Balance Sheet ◽  
Management Tool ◽  
Stress Tests ◽  
Management Tools ◽  
Simple Task

With the current cross-border growth in Islamic finance, Islamic commercial banks (ICBs) are looking forward to being perceived as an industry in the process of becoming mature. This would require the establishment of some basic infrastructure, including sophisticated risk management tools that enhance the soundness and resilience of the ICBS. This paper focuses on the latter that is the role and significance of stress testing as a risk management tool. The stress testing has become part of the regulatory and supervisory authorities within the financial stability analysis. The global financial crisis (2008) has placed the spotlight squarely on stress tests. Though, ICBs operate within the similar financial environment, and their balance sheet composition, however, calls for different treatment in stress testing. Apart from the specificities of ICBs, there are key issues and challenges that should be given due considerations in developing an appropriate stress testing regime. This paper explores key specificities and challenges. The paper argues that in the beginning, conducting the stress testing may not appear a simple task for the ICBs. However, a proper consideration to the challenges identified in the paper would certainly tend to improve the overall effectiveness and credibility of the stress testing programmes.

Τραπεζικά stress tests, χρηματοπιστωτική σταθερότητα και συστημικός κίνδυνος

2018 ◽  
Author(s):  
Κωνσταντίνος Μουτσιάνας
Keyword(s):  
Stress Testing ◽  
Stress Test ◽  
Stress Tests ◽  
Too Big To Fail

Η πρόσφατη χρηματοπιστωτική κρίση που μεταδόθηκε γρήγορα λόγω της έντονης διασύνδεσης των χρηματοπιστωτικών συστημάτων και έλαβε παγκόσμια χαρακτηριστικά, ανέδειξε την αναγκαιότητα για τη διαμόρφωση πολιτικών και στρατηγικών που θα θωρακίζουν τη χρηματοπιστωτική σταθερότητα, θα μειώνουν τον συστημικό κίνδυνο και θα διασφαλίζουν την ομαλή λειτουργία των χρηματοπιστωτικών συστημάτων. Η παρούσα διδακτορική διατριβή άρχισε να διαμορφώνεται παράλληλα με το ξέσπασμα της κρίσης χρέους στην Ευρώπη και έχει ενσωματώσει –από ερευνητική σκοπιά- τα κορυφαία ζητήματα που αναδείχτηκαν στις χρηματοοικονομικές αγορές, διαμορφώνοντας έναν άξονα συνοχής με επίκαιρη επιστημονική θεματολογία: stress testing, “too big to fail” (TBTF) χρηματοπιστωτικά ιδρύματα, συστημικός κίνδυνος, Τρόικα, χρηματοπιστωτική σταθερότητα.Η διδακτορική διατριβή περιλαμβάνει δοκίμια τραπεζικής χρηματοοικονομικής και χρηματοπιστωτικής σταθερότητας. Η πρώτη εργασία τιτλοφορείται «Μεθοδολογία ασκήσεων προσομοίωσης ακραίων καταστάσεων (stress testing)» και περιλαμβάνει μια θεωρητική προσέγγιση που εστιάζει στην περιγραφή του σχετικού εννοιολογικού πλαισίου και της πολυεπίπεδης ανάπτυξης των σταδίων του stress test. Η δεύτερη εργασία έχει τίτλο «Ανάπτυξη και εφαρμογή ενός προγράμματος προσομοίωσης ακραίων καταστάσεων (stress test) στο ελληνικό τραπεζικό σύστημα». Η εμπειρική μελέτη του κεφαλαίου περιέχει την ανάπτυξη και εφαρμογή ενός μακροοικονομικού stress test για το ελληνικό τραπεζικό σύστημα. Ειδικότερα, αναπτύχθηκε ένα οικονομετρικό μοντέλο το οποίο εκτιμά τον πιστωτικό κίνδυνο στο ελληνικό τραπεζικό σύστημα λαμβάνοντας υπόψη τις επιπτώσεις των μακροοικονομικών συνθηκών. Ο τίτλος του τρίτου δοκιμίου είναι «Η επίδραση των αποτελεσμάτων των stress tests στις διεθνείς χρηματοοικονομικές αγορές» και εξετάζει την επίδραση των αποτελεσμάτων των stress tests στις διεθνείς χρηματοοικονομικές αγορές. Ο σκοπός του κεφαλαίου είναι να ερευνήσει σε ποιο βαθμό τα ευρωπαϊκά stress tests παρέχουν πληροφορίες στις χρηματοοικονομικές αγορές και τον τρόπο με τον οποίο οι χρηματοοικονομικές αγορές αντιδρούν στη συνολική διαδικασία της μεθοδολογίας προσομοίωσης ακραίων καταστάσεων, με έμφαση στην ανακοίνωση των αποτελεσμάτων. Το ενδιαφέρον ζήτημα των “too big to fail” χρηματοπιστωτικών ιδρυμάτων αναλύεται στο τέταρτο δοκίμιο εργασίας το οποίο έχει τίτλο «Χρηματοπιστωτική σταθερότητα, μεταβλητότητα κερδοφορίας και μέγεθος τραπεζών». Το δοκίμιο εξετάζει τη σχέση του μεγέθους των τραπεζικών ιδρυμάτων του Ηνωμένου Βασιλείου και της μεταβλητότητας της κερδοφορίας τους και περιλαμβάνει, επιπρόσθετα, μια συγκριτική ανάλυση των αποτελεσμάτων ανάμεσα στις εμπορικές και επενδυτικές τράπεζες. Τέλος, το πέμπτο δοκίμιο με τίτλο «Αξιολόγηση της επίδρασης των χρηματοδοτικών προγραμμάτων οικονομικής βοήθειας του μηχανισμού στήριξης “Tρόικα” στο συστημικό κίνδυνο των χρηματοπιστωτικών συστημάτων» περιλαμβάνει ένα εκτενές εννοιολογικό πλαίσιο για το συστημικό κίνδυνο και μια επισκόπηση των χρηματοδοτικών προγραμμάτων στήριξης (για την Ελλάδα, Ιρλανδία, Πορτογαλία, Ισπανία και Κύπρο). Στο εμπειρικό μέρος του δοκιμίου αξιολογείται η επίδραση της εφαρμογής των προγραμμάτων οικονομικής βοήθειας και οικονομικής προσαρμογής στο συστημικό κίνδυνο των χρηματοπιστωτικών συστημάτων των χωρών που συμμετείχαν στα εν λόγω προγράμματα.

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