Technical gazette, Vol. 20 No. 6, 2013.
Original scientific paper
A combined principal component analysis-regression analysis model to study the effect on technical efficiency of bad loans in bank industry
Omid Mashhadifarahani
; Department of Management, Shahre Qods Branch, Islamic Azad University, Tehran, Iran
Narges Rezavi
; Department of Industrial Engineering, Khatam Institute of Higher Education, Tehran, Iran
Loghman Hatami-Shirkouhi
; Roudbar Branch, Islamic Azad University, Roudbar, Iran
Abstract
This paper presents a combined principal component analysis-regression analysis (PCA-RA) model to study the effects of bad loans on the economic performance of banking systems. This model first applies PCA to calculate the overall technical efficiency of banks and then uses regression analysis to find the impact of bad loans on technical efficiency. Bad loans or Non-performing loans (NPLs) include: past due loans; bankrupt and quasi- bankrupt assets, and doubtful assets. The technical efficiency of banks is measured with reference to three input indicators: number of branches, deposits, and costs; and three output indicators: income, profit, and loans. Then technical efficiency is regressed on two explanatory variables of loans and bad loans. Results of a case study in governmental banks in Iran show that bad loans have negative impact on the technical efficiency of banks.
Keywords
bad loans; banking industry; non-performing loans; principal component analysis; regression analysis; technical efficiency
Hrčak ID:
112328
URI
Publication date:
20.12.2013.
Visits: 3.420 *