Investigating the performance of European banks using non-parametric techniques: the role of performing loans efficiency

Abstract

Purpose

The scope of this research is to investigate performing loan efficiency for fifty European banks during the period 2008–2017.

Design/methodology/approach

The study is structured as a two-stage analysis of performing loan efficiency and its driving factors. In the first stage of the proposed methodology “Data Envelopment Analysis” is used to estimate performing loan efficiency for each bank included in the sample. A bootstrap statistical procedure enhances the findings. In the second stage, the impact of other factors on the efficiency scores of loan performance using tobit regression is investigated.

Findings

The results are consistent with the findings of the individual banks' financial analyses. According to the findings of DEA implementation, the evaluated banks may enhance their cost efficiency by 39% on average. In addition, the results indicate that loan efficiency performance improves after 2015, coinciding with the business cycle's upward trend. The tobit regression is employed in the second stage to examine the influence of bank-related and macroeconomic factors on banks' loan management efficiency. According to the findings of the tobit regression, three factors, namely the capital adequacy ratio, GDP per capita and managerial inefficiency, have a substantial influence on performing loan efficiency.

Originality/value

This research investigates the effectiveness of European economic policy in protecting the European banking system from the consequences of the sovereign debt crisis in several euro area members. The results highlight the distance of the Eurozone from the level of the ‘optimal currency area’.

Citation

Dimitras, A.I., Dokas, I., Mamou, O. and Spyromitros, E. (2023), "Investigating the performance of European banks using non-parametric techniques: the role of performing loans efficiency", EuroMed Journal of Business, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/EMJB-11-2022-0202