mohammad omidinezhad; Teimour Mohammadi; Mahmood Khataei
Abstract
Based on Basel II Accord, loans paid to individuals and SMEs are included in retail portfolio and banks are permitted to choose standardized approach or internal rating based approach for calculating their credit risk capital requirements. In the case of IRB Implementation, banks should group their retail ...
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Based on Basel II Accord, loans paid to individuals and SMEs are included in retail portfolio and banks are permitted to choose standardized approach or internal rating based approach for calculating their credit risk capital requirements. In the case of IRB Implementation, banks should group their retail loans into homogenous risk pools. Particularly, IRB capital requirement function is related to probability of default (PD) and Loss given default (LGD) for each borrower. Mathematically, capital requirement function is concave in PD for a given LGD and for a widespread interval. As a result of capital requirement function concavity, banks could lower their overall capital requirement through classification of their loans into more homogenous risk pools. In this study, loans paid to individual retail customers of 1343 for one of the private banks during 1391-1392 have been classified into homogenous risk pools by the Classification and Regression Trees (CART) algorithm. As we go from level 0 to level 5 in customers' segmentation scheme, capital required for bank experiences a decline of 0.44%.
Seyed Komail Tayebi; Mohammad Omidinezhad; Abbas Motahari Nejad
Volume 13, Issue 41 , February 2010, , Pages 1-28
Abstract
The purpose of this research is to measure cost and profit efficiency for the Iran's commercial and public banks. We also determine time variant efficiency factors for period 1381-1384 (2001-2004). To measure the efficiency, we use stochastic frontier analysis (SFA) and error component model following ...
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The purpose of this research is to measure cost and profit efficiency for the Iran's commercial and public banks. We also determine time variant efficiency factors for period 1381-1384 (2001-2004). To measure the efficiency, we use stochastic frontier analysis (SFA) and error component model following Battese and Coelli (1992) using the Maximum Likelihood method and a panel data. Labor, physical capital, and financial capital are considered as inputs, and loans, bonds and other earning assets as outputs. The results show that most of the private banks are more efficient in profit efficiency than public banks, while most of the public banks are more efficient than private banks in cost efficiency. The cost efficiency has decreased but the profit efficiency has increased for the period under consideration. Profit efficiency is not positively correlated with cost efficiency, suggesting the possibility that cost and revenue inefficiencies may be negatively correlated. Cost efficiency ranges from 46.88 percent (Bank Saderat) to 91.58 percent (Bank Tejarat) with an average of 68.8 percent, and profit efficiency from 61.16 percent (Bank Melli) to 94.85 percent (Bank Sepah) with an average of 85.3 percent. Average and variance of profit efficiency is more than those of cost efficiency, implying profit efficiency is influenced by more variables.
