272 research outputs found
DETERMINANTS OF BANK PROFITABILITY IN THE SOUTH EASTERN EUROPEAN REGION
The aim of this study is to examine the profitability behaviour of bank-specific, industry-related and macroeconomic determinants, using an unbalanced panel dataset of South Eastern European (SEE) credit institutions over the period 1998-2002. The estimation results indicate that, with the exception of liquidity, all bank-specific determinants significantly affect bank profitability in the anticipated way. A key result is that the effect of concentration is positive, which provides evidence in support of the structure-conduct-performance hypothesis, even though some ambiguity arises given its interrelationship with the efficient-structure hypothesis. In contrast, a positive relationship between banking reform and profitability was not identified, whilst the picture regarding the macroeconomic determinants is mixed. The paper concludes with some remarks on the practicality and implementability of the findings.
The effect of board size and composition on bank efficiency
This paper analyzes the relationship between board structure, in terms of board size and composition, and bank performance. Unlike previous studies, the present analysis is carried out within a stochastic frontier framework. To this end, bank performance is proxied by both cost and profit efficiency, measures that present considerable advantages over simple accounting ratios. The empirical framework formed is applied to a panel of large European banks operating during the period 2002-2006. We find that board size negatively affects banksâ cost and profit efficiency, while the impact of board composition on profit efficiency is non-linear. Finally, introducing risk-taking (credit risk) as an interaction component of board size and composition does not affect the robustness of the results.Corporate governance; Board size and composition; Bank cost and profit efficiency; Stochastic frontier analysis
Assessing Output and Productivity Growth in the Banking Industry
This paper assesses the evolution of output and productivity in the Greek banking industry for the period 1990-2006. Three main categories of bank output were estimated based on modern theoretical approaches, while for the aggregation and estimation of output and inputs and the estimation of productivity (partial and total factor) we relied on the index number method (Tornqvist index). Additionally, we considered the effect of labor quality on banksâ productivity and using a growth accounting framework we examined the contribution of total factor productivity (TFP) to bank output growth. The results show that bank output and labor productivity increased considerably during the period under examination, outpacing the respective GDP growth and labor productivity of the Greek economy. Capital productivity and TFP of the Greek banking industry have also improved remarkably mainly since 1999, as a result of the structural changes that took place within the industry, capital investments (mainly in IT equipment) as well as improvement in the quality of human capital.Bank output; user-cost approach; total factor productivity; Tornqvist index; growth accounting; labor quality
Evaluating cost and profit efficiency: a comparison of parametric and nonparametric methodologies
The objective of this article is 2-fold. First, it provides an empirical assessment of the cost and profit stochastic frontiers based on a panel dataset of Greek commercial banks over the period 1993 to 2005. Second, on the basis of the same sample, it also compares the most widely used parametric and nonparametric techniques to cost efficiency measurement, namely, the Stochastic Frontier Approach and Data EnvelopmentAnalysis. The results suggest greater similarities between the predictions of cost and profit efficiency methods than between parametric and nonparametric techniques. Such evidence is new in the literature and calls for a more technically level playing field for estimating bank efficiency.Bank cost and profit efficiency; Parametric and non-parametric methods
The volatility of Greek interbank rates : a continuous time analysis
In this paper we investigate the relationship between the volatility of Greek interbank
rates and the level of rates by estimating the important CKLS interest rate model using
the estimation method of (Nowman, 1997). We also estimate the interest rate models of
Merton, Vasicek, CIRSR, Dothan, GBM, Brennan and Schwartz, CIRVR, and CEV
models. We find the volatility of short-term rates is highly sensitive to the level of rates in
Greece and is much higher than is usually assumed by these commonly used models in
the financial markets.peer-reviewe
The Greek bank-insurance model : a look at a not-so-new corporate structure
One of the notable characteristics of modern financial markets is the
convergence among financial institutions, which until recently preformed
different tasks. To this end, the present study explores the bank-insurance
phenomenon in the Greek market. It focuses on the development of financial
conglomerates in the region, while arguing that the phenomenon is not as new as
one would expect. A variant of the bank-insurance approach to financial services
seems to have dominated the Greek market for over a century. An analysis of
recent developments is also presented, with the evidence indicating a trend
towards multi-venture partnerships as well as active involvement of multinational
enterprises.peer-reviewe
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The role of correlation dynamics in sector allocation
This paper assesses the economic value of modeling conditional correlations for meanâvariance portfolio optimization. Using sector returns in three major markets we show that the predictability of models describing empirical regularities in correlations such as time-variation, asymmetry and structural breaks leads to significant performance gains over the static covariance strategy. Investors would be willing to pay a fee of up to 983 basis points to switch from the static to the dynamic correlation portfolio and about 100 basis points more for capturing asymmetries and shifts in correlations. The gains are robust to the crisis, transaction costs and are most pronounced for monthly rebalancing
The Determinants Of European Bank Profitability
The rate of return earned by a financial institution is affected by numerous factors. These factors include elements internal to each financial institution and several important external forces shaping earnings performance. The type of explanation would determine possible policy implications and ought to be taken seriously. This paper reviews the literature on bank performance studies and classifies the bank profitability determinants. The second part of the paper quantifies how internal determinants (âwithin effectsâ changes) and external factors (âdynamic reallocationâ effects) contribute to the performance of the EU banking industry as a whole in 1994-1998. We construct OLS and fixed effects models, and the results provide a new perspective for understanding the impact of changes in competition on the performance of the EU banking industry. The estimation results suggest that the profitability of European banks is influenced not only by factors related to their management decisions but also to changes in the external macroeconomic environment. The results are in contrast to studies that have examined the structure-performance relationship for European banking and find a positive effect of the concentration and/or market share variables on bank profitability
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Return and Volatility Spillover among Banks and Insurers: Evidence from Pre-Crisis and Crisis Periods
We investigate the return and volatility interdependencies among the US, the UK, the EU, and Japanese banks and insurers during the period of 2003 to 2009. We find strong return and volatility transmissions within and across banking and insurance industries, strengthened contagious spillover effects during the crisis of 2007 to 2009, and a leading role played by the US financial institutions as information providers in global markets. Furthermore, we find that firm characteristics such as size and leverage drive the interdependencies among major banking firms. Our findings have important implications for effective hedging and diversification strategies, asset pricing and risk management, and the formulation of regulatory and monetary policies
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European Banking Industry: Sources of Income and Profitability
THE EU banking systems are facing major changes in the form of increased competition, concentration and restructuring. These changes are triggered by a number of factors including technological change, financial liberalisation and internationalisation. The circulation of the single currency is expected to reinforce these trends.
Although the banking industry is in a state of flux, it is possible to discern some overall patterns in the actions and strategies of individual banks. The effects of these responses are mainly reflected in changes in the structure of bank income and, in particular, in the increasing incidence of non-interest income. The analysis of the shift towards noninterest income provides key information for evaluating the extent to which this process could affect banksâ profitability.
Profits have become the driving force in market economies. Many banks are keenly interested in earning maximum profits to provide the highest possible return to their shareholders and secure additional funds to support long-term growth. As the EU banking industry continuously evolves, changes in industry composition and the macroeconomic environment have a direct impact on the aggregate performance of the industry.
If banksâ profitability becomes more volatile, banking is more risky unless the level of profitability raises substantially. So, there is a clear connection between profitability volatility and banking stability; a high level of profitability volatility is a source of instability in the banking system, augmenting the possibility of bank failures. A move to more interest rate sensitive assets like securities and to off-balance sheet instruments, along with more prone to default assets, like consumption credit, may increase the profitabilityâs volatility and so the stability and soundness of the banking system. The changes in the banksâ income structure and the determinants of profitability deriving from developments in the banking business will have clear implications on the activity of banking supervision
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