In this thesis I have studied the causal relationship between cost efficiency and non-performing loans using DEA models and censored Tobit model. The results have shown that foreign banks are more efficient than domestic banks. Large banks are the most efficient and incur less non-performing loans. There is no significant difference between the efficiency of medium and small banks. Overall the efficiency of the banking system has improved over the period 2000-2015. When controlling for other factors such as bank-specific, macroeconomic and institutional determinants, either separately or together, non-performing loans and cost efficiency has no significant effect on one another. However, non-performing loans level has a strong and significant effect on cost efficiency change. The “skimping” hypothesis is confirmed. Banks skimp on their resources at the expense of accumulating large amount of non-performing loans. The results also favor the “bad luck” and the “moral hazard” hypothesis. Finally, non-performing loans and cost efficiency have a significant relationship with their correlates such as dollarization, banks’ ownership, banks’ size and bonds’ interest rate.

In this thesis I have studied the causal relationship between cost efficiency and non-performing loans using DEA models and censored Tobit model. The results have shown that foreign banks are more efficient than domestic banks. Large banks are the most efficient and incur less non-performing loans. There is no significant difference between the efficiency of medium and small banks. Overall the efficiency of the banking system has improved over the period 2000-2015. When controlling for other factors such as bank-specific, macroeconomic and institutional determinants, either separately or together, non-performing loans and cost efficiency has no significant effect on one another. However, non-performing loans level has a strong and significant effect on cost efficiency change. The “skimping” hypothesis is confirmed. Banks skimp on their resources at the expense of accumulating large amount of non-performing loans. The results also favor the “bad luck” and the “moral hazard” hypothesis. Finally, non-performing loans and cost efficiency have a significant relationship with their correlates such as dollarization, banks’ ownership, banks’ size and bonds’ interest rate.

Abid, L., Ouertani, M. N., & Zouari-Ghorbel, S. (2014). Macroeconomic and Bank-specific Determinants of Household’s Non-performing Loans in Tunisia: A Dynamic Panel Data. Procedia Economics and Finance, 13(December 2013), 58–68. http://doi.org/10.1016/S2212-5671(14)00430-4
Akther, S., Fukuyama, H., & Weber, W. L. (2013). Estimating two-stage network Slacks-based inefficiency: An application to Bangladesh banking. Omega, 41(1), 88–96. http://doi.org/10.1016/j.omega.2011.02.009
Altunbas, Y., Carbo, S., Gardener, E. P. M., & Molyneux, P. (2007). Examining the relationships between capital, risk and efficiency in European banking. European Financial Management, 13(1), 49–70. http://doi.org/10.1111/j.1468-036X.2006.00285.x
Altunbas, Y., Liu, M.-H., Molyneux, P., & Seth, R. (2000). Efficiency and risk in Japanese banking. Journal of Banking & Finance, 24(10), 1605–1628. http://doi.org/10.1016/S0378-4266(99)00095-3
Banker, R. D., Chang, H., & Lee, S. Y. (2010). Differential impact of Korean banking system reforms on bank productivity. Journal of Banking and Finance, 34(7), 1450–1460. http://doi.org/10.1016/j.jbankfin.2010.02.023
Banque de la République d’Haïti. (n.d.). Supervision bancaire | Rapports statistiques. Retrieved from http://www.brh.net/stats_financieres.html
Beck, T., & Hesse, H. (2009). Why are interest spreads so high in Uganda? Journal of Development Economics, 88(2), 192–204. http://doi.org/10.1016/j.jdeveco.2008.07.004
Berger, A. N., & Deyoung, R. (1997). Problem Loans and Cost Efficiency in Commercial Banks. Journal of Banking and Finance, 21, 849–870.
Berger, A. N., & Humphrey, D. B. (1992). Measurement and Efficiency Issues in Commercial Banking. Output Measurement in the Service Sectors. Retrieved from http://ideas.repec.org/h/nbr/nberch/7237.html
Bos, J., & Bikker, J. (2008). Bank Performance (Vol. 20082244). Routledge. http://doi.org/10.4324/9780203030899
Cadet, R. L. (2008). Cost and profit efficiency of banks in Haiti: Do domestic banks perform better than foreign banks? Munich Personal RePEc Acrchive. http://doi.org/10.1504/IJBAAF.2015.070507
Carvallo, O., & Kasman, A. (2005). Cost efficiency in the Latin American and Caribbean banking systems. Journal of International Financial Markets, Institutions and Money, 15(1), 55–72. http://doi.org/10.1016/j.intfin.2004.02.002
Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the efficiency of decision making units. European Journal of Operational Research, 2(6), 429–444. http://doi.org/10.1016/0377-2217(78)90138-8
Chen, C. (2009). Bank Efficiency in Sub-Saharan African Middle Income Countries. IMF Working Papers, 9(14), 1. http://doi.org/10.5089/9781451871616.001
Cook, W. D., Tone, K., & Zhu, J. (2014). Data envelopment analysis: Prior to choosing a model. Omega (Vol. 44). http://doi.org/10.1016/j.omega.2013.09.004
De Nicolo, G., Patrick, H., & Ize, A. (2003). Dollarizing the banking system: Good or Bad.
Debreu, G. (1951). The Coefficient of Resource Utilization, 19(3), 273–292.
Demirgüç-Kunt, A., Laeven, L., Levine, R., Berger, A., Boyd, J., De Nicolo, G., … Bank, W. (2003). REGULATIONS, MARKET STRUCTURE, INSTITUTIONS, AND THE COST OF FINANCIAL INTERMEDIATION (NBER WORKING PAPER SERIES No. 9890). Retrieved from http://www.nber.org/papers/w9890
Ekanayake, A. ., & Azeez, E. M. N. N. (2015). Determinants of non-performing loans in licensed commercial banks: Evidence from Sri Lanka. Asian Economic and Financial Review, 5(6), 868–882. http://doi.org/10.18488/journal.aefr/2015.5.6/102.6.868.882
Espinoza, R., & Prasad, A. (2010). Nonperforming Loans in the GCC Banking System and their Macroeconomic Effects. IMF Working Papers, 25. http://doi.org/10.5089/9781455208890.001
Farrel, M. J. (1957). The measurement of productive efficiency. Royal Statistical Society, 120(3), 253–290. Retrieved from http://www.jstor.org/stable/2343235
Fries, S., & Taci, A. (2004). Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries. Journal of Banking & Finance, 29(1), 55–81. http://doi.org/10.1016/j.jbankfin.2004.06.016
Fukuyama, H., & Weber, W. L. (2008). Japanese banking inefficiency and shadow pricing. Mathematical and Computer Modelling, 48(11–12), 1854–1867. http://doi.org/10.1016/j.mcm.2008.03.004
Ghosh, A. (2015). Banking-industry specific and regional economic determinants of non-performing loans: Evidence from US states. Journal of Financial Stability, 20, 93–104. http://doi.org/10.1016/j.jfs.2015.08.004
Golany, B., & Roll, Y. (1989). An application procedure for DEA. Omega, 17(3), 237–250. http://doi.org/10.1016/0305-0483(89)90029-7
J. Coelli, T., Prasada Rao, D. S., J. O’Donnell, C., & E. Battese, G. (2005). An introduction to efficiency and productivity analysis. Biometrics (Vol. 41). http://doi.org/10.2307/2531310
Jemric, I., & Vujcic, B. (2002). Efficiency of Banks in Croatia: A DEA Approach*. Comparative Economic Studies, 44(2–3), 169–193. http://doi.org/10.1057/ces.2002.13
Louzis, D. P., Vouldis, A. T., & Metaxas, V. L. (2010). Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portfolios. Journal of Banking and Finance, 36(4), 1012–1027. http://doi.org/10.1016/j.jbankfin.2011.10.012
Podpiera, J., & Weill, L. (2008). Bad luck or bad management? Emerging banking market experience. Journal of Financial Stability, 4(2), 135–148. http://doi.org/10.1016/j.jfs.2008.01.005
Poghosyan, T. (2013). Financial intermediation costs in low income countries : The role of regulatory , institutional , and macroeconomic. Economic Systems, 37(1), 92–110. http://doi.org/10.1016/j.ecosys.2012.07.003
Quagliariello, M. (2007). Banks’ riskiness over the business cycle: a panel analysis on Italian intermediaries. Applied Financial Economics, 17(2), 119–138. http://doi.org/10.1162/JEEA.2008.6.6.1109
Staikouras, C., Mamatzakis, E., & Koutsomanoli-Filippaki, A. (2007). Cost efficiency of the banking industry in the South Eastern European region. Journal of International Financial Markets, Institutions and Money, 18(5), 483–497. http://doi.org/10.1016/j.intfin.2007.07.003
The World bank. (n.d.). Data | The World Bank. Retrieved from http://data.worldbank.org/
Tone, K. (2001). A slacks-based measure of efficiency in data envelopment analysis. European Journal of Operational Research, 130(3), 498–509. http://doi.org/10.1016/S0377-2217(99)00407-5
Zaini Abd Karim, M., Chan, S.-G., & Hassan, S. (2010). Bank Efficiency and Non-Performing Loans: Evidence from Malaysia and Singapore. Prague Economic Papers, 19(2), 118–132. http://doi.org/10.18267/j.pep.367
Zha, Y., Liang, N., Wu, M., & Bian, Y. (2016). Efficiency evaluation of banks in China: A dynamic two-stage slacks-based measure approach. Omega, 60, 60–72. http://doi.org/10.1016/j.omega.2014.12.008