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Factors Influencing the Profitability of EU Banks’ Before and During the Financial Crisis

Year 2016, Volume 3, Issue 2, 151 - 184, 07.10.2016
https://doi.org/10.17336/igusbd.64827

Abstract

Bu çalışmanın amacı, Avrupa bankalarının kredi risklerinin finansal performans üzerindeki etkilerini araştırmaktır. Aktif getiri oranı (ROA) ve özkaynak getiri oranı (ROE) bağımlı değişkenler olup finansal performans göstergeleri olarak kullanılmıştır. Sermaye yeterlilik oranı (CAR), batık krediler (NPL), kredi kayıp karşılığı (LLP) ve borçların krediye oranı (LTD) ise bağımsız değişkenler olarak alınmış olup kredi risklerinin ölçümünde kullanılmıştır. Bu çalışmada, banka kârlılık göstergeleri olan ROA ve ROE her ikisinin de kredi riski ile önemli ölçüde ilişkili olduğu ortaya çıkmıştır. CAR banka performansını pozitif yönde etkilerken NPL ve LLP negatif yönde etkilemektedir. Ayrıca LTD ile banka kârlılığı arasında önemli bir ilişki bulunamamıştır. Kısaca, Avrupa‘daki bankaların kârlılığının yüksek olması daha iyi bir kredi risk yönetiminden geçmektedir. Bunun yanında INF ve GDP ayrıca göz önünde bulundurulmalıdır. GDP negatif bir etkiye sahip iken INF pozitif bir etkiye sahiptir.

 

Anahtar Kelimeler: Kredi Risk, Performansı, Panel Data Regresyonu, EU Bankaları, Kriz Öncesi ve Sonrası.

References

  • AHMAD, N.H. and M. ARIFF, “Multi-Country Study of Bank Credit Risk Determinants”, International Journal of Banking and Finance, 5(1), 2007, p. 135-152.
  • AL-KHOURI, R., “Assessing the Risk and Performance of the GCC Banking Sector”, International Journal of Finance and Economics, Issue 65, 2011, p. 72-8.
  • ATHANASOGLOU, P. P., S. N. BRISSIMIS, M. D. DELIS, “Bank Specific, Industry Specific and Macroeconomic Determinants of Bank Profitability”, [online], 2005, No: 25, Available from: http://www.sciencedirect.com /science/article/pii/S1042443106000473 [Accessed: 01/01/2014].
  • BEN-NACEUR, S. and M. OMRAN, “The Effects of Bank Regulations, Competition and Financial Reforms on MENA Banks’ Profitability”, Economic Research Forum Working Paper, No. 44, 2008.
  • BOAHENE, S. H., J. DASAH, and S. K. AGYEI, “Credit Risk and Profitability of Selected Banks in Ghana”, Research Journal of Finance and Accounting, 2012.
  • CHEN, K. and C. PAN, “An Empirical Study of Credit Risk Efficiency of Banking Industry in Taiwan”, Web Journal of Chinese Management Review, 15(1), 1-16, 2012.
  • CHEN, K. and C. PAN, An Empirical Study of Credit Risk Efficiency of Banking Industry in Taiwan, Web Journal of Chinese Management Review, 15(1), 1-16, 2012.
  • DEMIRGUC, A., H. HUIZINGA, “Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence” [online], 1998, Available from: http://econ.worldbank.org/external/default/main? pagePK=64210502&theSitePK=469372&piPK=64210520&menuPK=64166093&entityID=000009265_3980429111510 [Accessed: 01/01/2014].
  • EPURE, M. and I. LAFUENTE, “Monitoring Bank Performance in the Presence of Risk”, Barcelona GSE Working Paper Series, No.61, 2012.
  • FELIX, A. T., T. N. CLAUDINE, “Bank Performance and Credit Risk Management”, Masters Dissertation in Finance, University of Skovde, 2008.
  • FLAMINI, V., C. MCDONALD, L. SCHUMACHER, “The Determinants of Commercial Bank Probability in Sub-Saharan Africa”, [online], IMF Working Paper, 09, 15, 2009, Available from: https://www.imf.org/external/pubs/ft/ wp/2009/wp0915.pdf [Accessed: 01/01/2014].
  • FREDRICK, O., “The Impact of Credit Risk Management on Financial Performance of Commercial Banks in Kenya”, DBA African Management Review, 2010.
  • HOSNA, A., B. MANZURA and S. JUANJUAN, “Credit Risk Management and Profitability in Commercial Banks in Sweden”, School of Business Economics and Law, 2009.
  • JACKSON, O., “The Impact of Credit Risk Management on Financial Performance of Commercial Banks in Kenya”, University of Nairobi, 2011.
  • KARGI, H.S., “Credit Risk and the Performance of Nigerian Banks”, Ahmadu Bello University, Zaria, 2011.
  • KITHINJI, A. M., “Credit Risk Management and Profitability of Commercial Banks in Kenya”, School of Business, University of Nairobi, 2010.
  • KOLAPO, T. F., R. K. AYENI and O. OKE, “Credit Risk Management and Banks Performance”, Australian Journal of Business and Management Research, 2012.
  • LI, Yuqi, “Determinants of Banks Profitability and its Implication on Risk Management Practices: Panel Evidence from the UK in the Period 1999-2006”, University of Nottingham, 2007.
  • MATTHEWS, K., “Risk Management and Managerial Efficiency in Chinese Banks: A Network DEA Framework”, Omega, Vol. 41, No. 2, 2013, p. 207-215.
  • NAWAZ, Muhammad, Shahid MUNIR and Shahid Ali Siddiqui, Tahseen-Ul- Ahad, Faisal Afzal, Muhammad Asif, Muhammad ATEEQ, “Credit Risk and the Performance of Nigerian Banks”, Interdisciplinary Journal of Contemporary Research in Business, 2012.
  • NJANIKE, K., “The Impact of Effective Credit Risk Management on Bank Survival”, Annals of the University of Petroşani, Economics, vol. 9, issue 2, 2009, p. 173–184.
  • ONAOLAPO, A. R., “Analysis of Credit Risk Management Efficiency in Nigerian Commercial Banking Sector”, Far East Journal of Marketing and
  • Management, 2012.
  • POUDEL, R. P. S., “The Impact of Credit Risk Management in Financial Performance of Commercial Banks in Nepal”, International Journal of Arts and Commerce, 2012.
  • RAVINDRA, Y., R. K. VYASI, S. MANMEET, “The impact of Capital Adequacy Requirements on Performance of Scheduled Commercial Banks” Asian-Pacific Business Review, 2008.
  • SAONA, P. H., “Determinants of the Profitability of the US Banking Industry”, International Journal of Business and Social Science, 2 (22), 2011, p. 255–269.
  • SCHULLER, B., “Bank Performance and Credit Risk Management”, University of Skovde, 2008.
  • STEWART, D.W. and M. A. KAMINS, Secondary Research: Information Sources and Methods, 2nd ed., Newbury Park: CA, Sag, 1993.

Factors Influencing the Profitability of EU Banks’ Before and During the Financial Crisis

Year 2016, Volume 3, Issue 2, 151 - 184, 07.10.2016
https://doi.org/10.17336/igusbd.64827

Abstract

This research aims at examining the effect of credit risk on financial performance of the EU banks. Return on Asset (ROA) and Return on Equity (ROE) which are dependent variables were used as financial performance indicators. Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), Loan Loss Provision (LLP) and Loan to Debt (LTD) which are independent variables were used as credit risk indicators. This study concludes that Return on Asset and Return on Equity both has been found to have significant effect on profitability. Capital Adequacy Ratio positively impacted banks’ financial performance with the exception of Non-Performing Loan and Loan Loss Provision which were found to have a negative impact on the banks’ profitability. Also, Loan to Debt generally was not significant to explain EU banks’ profitability. Shortly, EU banks profitability has been affected positively with better credit risk of these banks. Additionally, credit risk committees should take Inflation and Gross Domestic Product level into account. While Gross Domestic Product level had a negative impact on EU banks’ profitability, Inflation had a positive effect on the EU banks’ profitability.

Keywords: Credit Risk, Performance, Panel Data Regression, EU Banks, Before and During the Crisis.

References

  • AHMAD, N.H. and M. ARIFF, “Multi-Country Study of Bank Credit Risk Determinants”, International Journal of Banking and Finance, 5(1), 2007, p. 135-152.
  • AL-KHOURI, R., “Assessing the Risk and Performance of the GCC Banking Sector”, International Journal of Finance and Economics, Issue 65, 2011, p. 72-8.
  • ATHANASOGLOU, P. P., S. N. BRISSIMIS, M. D. DELIS, “Bank Specific, Industry Specific and Macroeconomic Determinants of Bank Profitability”, [online], 2005, No: 25, Available from: http://www.sciencedirect.com /science/article/pii/S1042443106000473 [Accessed: 01/01/2014].
  • BEN-NACEUR, S. and M. OMRAN, “The Effects of Bank Regulations, Competition and Financial Reforms on MENA Banks’ Profitability”, Economic Research Forum Working Paper, No. 44, 2008.
  • BOAHENE, S. H., J. DASAH, and S. K. AGYEI, “Credit Risk and Profitability of Selected Banks in Ghana”, Research Journal of Finance and Accounting, 2012.
  • CHEN, K. and C. PAN, “An Empirical Study of Credit Risk Efficiency of Banking Industry in Taiwan”, Web Journal of Chinese Management Review, 15(1), 1-16, 2012.
  • CHEN, K. and C. PAN, An Empirical Study of Credit Risk Efficiency of Banking Industry in Taiwan, Web Journal of Chinese Management Review, 15(1), 1-16, 2012.
  • DEMIRGUC, A., H. HUIZINGA, “Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence” [online], 1998, Available from: http://econ.worldbank.org/external/default/main? pagePK=64210502&theSitePK=469372&piPK=64210520&menuPK=64166093&entityID=000009265_3980429111510 [Accessed: 01/01/2014].
  • EPURE, M. and I. LAFUENTE, “Monitoring Bank Performance in the Presence of Risk”, Barcelona GSE Working Paper Series, No.61, 2012.
  • FELIX, A. T., T. N. CLAUDINE, “Bank Performance and Credit Risk Management”, Masters Dissertation in Finance, University of Skovde, 2008.
  • FLAMINI, V., C. MCDONALD, L. SCHUMACHER, “The Determinants of Commercial Bank Probability in Sub-Saharan Africa”, [online], IMF Working Paper, 09, 15, 2009, Available from: https://www.imf.org/external/pubs/ft/ wp/2009/wp0915.pdf [Accessed: 01/01/2014].
  • FREDRICK, O., “The Impact of Credit Risk Management on Financial Performance of Commercial Banks in Kenya”, DBA African Management Review, 2010.
  • HOSNA, A., B. MANZURA and S. JUANJUAN, “Credit Risk Management and Profitability in Commercial Banks in Sweden”, School of Business Economics and Law, 2009.
  • JACKSON, O., “The Impact of Credit Risk Management on Financial Performance of Commercial Banks in Kenya”, University of Nairobi, 2011.
  • KARGI, H.S., “Credit Risk and the Performance of Nigerian Banks”, Ahmadu Bello University, Zaria, 2011.
  • KITHINJI, A. M., “Credit Risk Management and Profitability of Commercial Banks in Kenya”, School of Business, University of Nairobi, 2010.
  • KOLAPO, T. F., R. K. AYENI and O. OKE, “Credit Risk Management and Banks Performance”, Australian Journal of Business and Management Research, 2012.
  • LI, Yuqi, “Determinants of Banks Profitability and its Implication on Risk Management Practices: Panel Evidence from the UK in the Period 1999-2006”, University of Nottingham, 2007.
  • MATTHEWS, K., “Risk Management and Managerial Efficiency in Chinese Banks: A Network DEA Framework”, Omega, Vol. 41, No. 2, 2013, p. 207-215.
  • NAWAZ, Muhammad, Shahid MUNIR and Shahid Ali Siddiqui, Tahseen-Ul- Ahad, Faisal Afzal, Muhammad Asif, Muhammad ATEEQ, “Credit Risk and the Performance of Nigerian Banks”, Interdisciplinary Journal of Contemporary Research in Business, 2012.
  • NJANIKE, K., “The Impact of Effective Credit Risk Management on Bank Survival”, Annals of the University of Petroşani, Economics, vol. 9, issue 2, 2009, p. 173–184.
  • ONAOLAPO, A. R., “Analysis of Credit Risk Management Efficiency in Nigerian Commercial Banking Sector”, Far East Journal of Marketing and
  • Management, 2012.
  • POUDEL, R. P. S., “The Impact of Credit Risk Management in Financial Performance of Commercial Banks in Nepal”, International Journal of Arts and Commerce, 2012.
  • RAVINDRA, Y., R. K. VYASI, S. MANMEET, “The impact of Capital Adequacy Requirements on Performance of Scheduled Commercial Banks” Asian-Pacific Business Review, 2008.
  • SAONA, P. H., “Determinants of the Profitability of the US Banking Industry”, International Journal of Business and Social Science, 2 (22), 2011, p. 255–269.
  • SCHULLER, B., “Bank Performance and Credit Risk Management”, University of Skovde, 2008.
  • STEWART, D.W. and M. A. KAMINS, Secondary Research: Information Sources and Methods, 2nd ed., Newbury Park: CA, Sag, 1993.

Details

Journal Section Articles
Authors

İşık AKIN This is me

Publication Date October 7, 2016
Published in Issue Year 2016, Volume 3, Issue 2

Cite

APA Akın, İ. (2016). Factors Influencing the Profitability of EU Banks’ Before and During the Financial Crisis . İstanbul Gelişim Üniversitesi Sosyal Bilimler Dergisi , 3 (2) , 151-184 . DOI: 10.17336/igusbd.64827

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