Data envelopment analysis in financial services: a citations network analysis of banks, insurance companies and money market funds

Development and application of the data envelopment analysis (DEA) method, have been the subject of numerous reviews. In this paper, we consider the papers that apply DEA methods specifically to financial services, or which use financial services data to experiment with a newly introduced DEA model. We examine 620 papers published in journals indexed in the Web of Science database, from 1985 to April 2016. We analyse the sample applying citations network analysis. This paper investigates the DEA method and its applications in financial services. We analyse the diffusion of DEA in three sub-samples: (1) banking groups, (2) money market funds, and (3) insurance groups by identifying the main paths, that is, the main flows of the ideas underlying each area of research. This allows us to highlight the main approaches, models and efficiency types used in each research areas. No unique methodological preference emerges within these areas. Innovations in the DEA methodologies (network models, slacks based models, directional distance models and Nash bargaining game) clearly dominate recent research. For each subsample, we describe the geographical distribution of these studies, and provide some basic statistics related to the most active journals and scholars

The Supervisory Impact of Technology on SEACEN Financial Institutions: Issues and Challenges

The development of financial markets cannot be isolated from the influence of technology. Technology, especially information technology (IT), plays a dual role in the financial field - as the engine of development of financial products and as the engine of financial institution operations. The operations of financial institutions in SEACEN countries involving the use of IT take on the second role. The more advanced SEACEN countries can actually compete with the world leaders in IT implementation by financial institutions. However, in terms of the second role of IT, SEACEN countries are still following the lead of the developed countries. This research project is aimed at providing a comparative study on the IT implementation within SEACEN financial sectors, including its supervisory impacts, issues and challenges. The project also serves as a documentation of the development of IT implementation by financial institutions in the SEACEN region. Since most central banks in the region are the authorities for the supervision of banking systems and not of non-bank financial institutions, the discussions on financial institutions pertain to banks. The project addresses the international best practices in IT implementation, cross-country comparison regarding IT implementation by financial institutions, the supervisory impacts, and the IT supervisory framework. SEACEN countries have different levels of IT implementation and IT supervisory frameworks. The country papers and survey results show that there are three different levels of IT implementation in the SEACEN countries. They are: 1) Developed IT implementation and established IT supervisory framework; 2) Early stage of IT implementation with less-established IT supervisory framework; and 3) Less-developed IT implementation. For each level of implementation, countries face different issues and challenges. Wherever IT implementation has become an important part of financial institution operations and management, the SEACEN member central banks consider IT supervision as an integral part of the overall financial institution supervisory framework. However, since there is cross-country heterogeneity of IT implementation and IT supervisory framework, suggesting a minimum requirement for IT implementation for institutions and a model IT supervisory framework is very difficult. The research project also addresses some issues and challenges faced by the countries in the region in terms of mitigating IT risks and bringing IT implementation by financial institutions in the region to a level playing field according to international best practices. The issues and challenges suggest the need to increase cooperation among the SEACEN member countries to increase IT awareness, implement good IT governance through establishing IT supervisory frameworks which conform to international best practices, increase knowledge sharing and training programmes in order to speed up the spill-over effects from the more advanced countries in the region.

Measuring a bank’s financial health : a case study for the Greek banking sector

The main aim of this article is to demonstrate a holistic framework for measuring a bank’s financial health by classifying its main responsibilities between conformance and performance. Responsibilities are classified into five categories as follows: First, Corporate Financial Reporting (CFR) that integrates General Accepted Accounting Principles (GAAP), Generally Accepted Auditing Standards (GAAS), Securities Exchange Commission (SEC), Financial Services Authority (FSA), and International Accounting Standards (IAS). Second, Risk Management Procedures (RMP), that incorporates methods and directives which arise from Basel I, Basel II, Capital Adequacy frameworks or solvency ratio benchmarks. Third, Corporate Governance (CG), that integrates Sarbanes – Oxley Act, Audit Committees, and Internal Audit Mechanisms. Fourth, Corporate Social Responsibility (CSR), that consists of instructions and standards such as Global Reporting Initiative (GRI) – social and environmental, Social accountability (SA 8000) – working conditions, International Organization for Standardization (ISO 9000). Fifth, Stockholders Value Creation (SVC), that is a set of methodologies and ratios used in order to measure value creation for shareholders such as Strategic and Balanced scorecard, Economic Value Added EVA®, and other business performance management tools. On the other, the Rating Agencies (RA) applies various rating systems in different fields. Based on this framework, the article correlates all qualitative and quantitative components, with the banks’ ratings. The dependent variable is the bank’s financial health score, represented by a dummy variable based on the bank’s rating by the rating agencies and from the relevant value of each bank that arises from its performance in the above mentioned framework of responsibilities. The independent quantitative variables belong to a set of financial, risk and market key ratios and the qualitative variables to a set of dummy variables which describe the above framework. With the use of financial and other published data of the Greek banking sector the article proposes a new model and a procedure for the explanation, management and monitoring of a bank’s financial health.peer-reviewe

On the possible tools for the prevention of non-performing loans. A case study of an Italian bank

This work analyses the contribution of an Information Systems (IS) to the implementation of credit monitoring as a new integrated process to prevent non-performing loans in a small bank. The study focuses on the process of active monitoring of the entire credit portfolio, aimed at guiding the best migration between risk classes. This is understood as a set of integrated activities, in which the quality of information becomes a major determinant of the outcome. Such tools support risk management in the decision-making process and aiding performance evaluation. The purpose of this work is to highlight the possibility of an IS to support this new integrated process of credit monitoring, providing increasingly reliable data, availability on demand and real-time information

Determinants of Financial Performance of Microfinance Banks in Kenya

Microfinance provides strength to boost the economic activities of low-income earners and thus contributes to eradication of poverty. However, microfinance institutions face stringent competition from commercial banks; the growth of microloan activities of commercial banks may confront microfinance institutions with increased competition for borrowers. In Kenya, the micro finance sector has extremely high competition indicated by the shifting market share and profitability. This study sought to examine the determinants of financial performance of Microfinance banks in Kenya. The study adopted a descriptive research design and used secondary data from 7 Microfinance banks for a period of 5 years from 2011 to 2015. The data collected was analyzed using correlation and regression analysis. The study found a positive and statistically significant relationship between operational efficiency, capital adequacy, firm size and financial performance of microfinance banks in Kenya. However, the study found an insignificant negative relationship between liquidity risk, credit risk and financial performance of microfinance banks in Kenya. The study concluded that there is direct relationship between operational efficiency, capital adequacy, firm size and financial performance of microfinance banks in Kenya. Keywords: Financial performance, Operational Efficiency, Capital Adequacy, Firm Size Microfinance Banks

Electronic security - risk mitigation in financial transactions : public policy issues

This paper builds on a previous series of papers (see Claessens, Glaessner, and Klingebiel, 2001, 2002) that identified electronic security as a key component to the delivery of electronic finance benefits. This paper and its technical annexes (available separately at http://www1.worldbank.org/finance/) identify and discuss seven key pillars necessary to fostering a secure electronic environment. Hence, it is intended for those formulating broad policies in the area of electronic security and those working with financial services providers (for example, executives and management). The detailed annexes of this paper are especially relevant for chief information and security officers responsible for establishing layered security. First, this paper provides definitions of electronic finance and electronic security and explains why these issues deserve attention. Next, it presents a picture of the burgeoning global electronic security industry. Then it develops a risk-management framework for understanding the risks and tradeoffs inherent in the electronic security infrastructure. It also provides examples of tradeoffs that may arise with respect to technological innovation, privacy, quality of service, and security in designing an electronic security policy framework. Finally, it outlines issues in seven interrelated areas that often need attention in building an adequate electronic security infrastructure. These are: 1) The legal framework and enforcement. 2) Electronic security of payment systems. 3) Supervision and prevention challenges. 4) The role of private insurance as an essential monitoring mechanism. 5) Certification, standards, and the role of the public and private sectors. 6) Improving the accuracy of information on electronic security incidents and creating better arrangements for sharing this information. 7) Improving overall education on these issues as a key to enhancing prevention.Knowledge Economy,Labor Policies,International Terrorism&Counterterrorism,Payment Systems&Infrastructure,Banks&Banking Reform,Education for the Knowledge Economy,Knowledge Economy,Banks&Banking Reform,International Terrorism&Counterterrorism,Governance Indicators

CORRELATION BETWEEN INTERNATIONAL FINANCIAL REPORTING STANDARDS AND ASSESSMENT IN THE CONTEXT OF MARKET VALUE RELATIONS -FAIR VALUE

Applying International Financial Reporting Standards (IFRS) will have the purpose: the rationale is that the professional accounting, switching to accounting based on fair value, involves getting more frequent information on the fair value of assets; professional staff should be informed of the substance of the economic activities of companies for a proper application of the standards (there are fewer detailed instructions of the Ministry of Finance); it is possible that tax regulations do not keep up with the accounting, tax implications of certain transactions may be unclear and therefore may conflict with tax authorities. This detaches the idea that the application of different standards, leading to different results, with implications for the interpretation of data, calculates economic and financial indicators and distorting "the truth accountant”. The analysis outlined above suggests that, at least at European level, making a financial audit, of how to evaluate companies in accordance with Financial Reporting Standards and IVSC would create an international market that would ensure international recognition specialists in this field.accounting information, market value, financial balance, bases of assessment, alternative treatment, IAS 39, fair value option, IVSC, IFRS

The relationship between risk, capital and efficiency in South African banks

Thesis submitted in partial fulfilment of the requirements for the degree of Master of Management in Finance and Investment Management in the Faculty of Commerce, Law and Management, Wits Business School at the University of the WitwatersrandThis research project analyzed the relationship between bank risk taking, capital and operating efficiency in South African banks. The relationship between bank risk taking, capital and operating efficiency is one of the central topics in banking studies because of regulators’ and researchers’ quest to understand the determinants of bank risk taking. The research used a panel data set of top 4 South African banks for the period 2004 to 2013. The period under study includes the credit crisis which therefore introduces parameter instability with a known structural break or change point into the regression parameters. The research data was collected from financial statements of the sampled the banks to construct standard accounting measures of bank risk taking, capital adequacy and operating efficiency all of which were regressed using simultaneous equations in EViews. The regression results do not provide evidence of any relationship between risk taking and capital. The only statistically significant relationship is the inverse relationship between risk taking and efficiency. The finding that efficiency is negatively related to bank risk taking supports earlier research findings that bank risk taking is more pronounced in inefficient banks compared to efficient ones. It also supports the moral hazard hypothesis which posits that banks undertake more risk taking when faced with greater inefficiencies; and the “bad management” hypothesis which states declines in efficiency lead to increased risk taking. The regression results also do not provide evidence of a relationship between capital and efficiency: implying that capital and efficiency are not simultaneously determined. The results in this study oblige management and regulators to pay much attention to operating efficiency as a driver of bank risk taking.MT201

The impact of the change from Basel II to Basel III on the profitability of the South African banking sector

The objective of this study is to analyse the impact of the change from Basel II to Basel III on the profitability of the South African banking sector. South African banks are regulated in accordance with the Basel Accords and, as such, this study reviews the literature on bank regulation and specifically the evolution of the Basel Accords. The 2008 global financial crisis exposed certain flaws in the global regulatory framework and paved the way for the introduction of Basel III, of which South Africa commenced implementation on 1 January 2013. As mentioned, the review of banking regulation literature will specifically focus on the changes from Basel II to Basel III, with a further focus on two of the key changes introduced by Basel III: the capital requirement amendments and the new liquidity ratios. The study examines the top five banks in South Africa, as these make up 91.1% of the industry's banking assets (as of December 2012). The top five banks are used to create a representative bank of the South African banking sector and an accounting model is performed using a DuPont analysis in order to measure profitability. With respect to the Basel III capital changes, the results show that a 2% increase in capital by increasing the equity-to-asset ratio and all else held equal will result in a decrease of 0.29% in return on equity (ROE) for the South African banking sector. With respect to the Basel III liquidity measures, a 25 basis decrease in maturity transformation, all else held equal, will translate into a 3.38% decrease in ROE. The study contributes to the recent literature on Basel III and profitability. The results will also benefit the South African banking industry and regulators when assessing the profitability impact of the new Basel regulations