Performance and risk in the Brazilian banking industry.
Francisco Javier Sáez-Fernández1, Andrés J Picazo-Tadeo2, Ignacio Jiménez-Hernández1
1Department of Spanish and International Economics, University of Granada, Spain.
Heliyon
|April 15, 2021
Summary
Brazilian banks can improve efficiency by increasing output without more resources or risk. Investment banks outperform commercial banks due to better management, enhancing banking performance analysis.
Area of Science:
- Financial Economics
- Banking Performance Analysis
- Risk Management in Financial Institutions
Background:
- Technical performance assessment in banking is crucial for stability and efficiency.
- Incorporating risk as an undesirable output is essential for realistic performance evaluation.
- Brazilian banking sector data from 2014-2019 provides a relevant case study.
Purpose of the Study:
- To evaluate the technical efficiency of Brazilian banks.
- To analyze banking performance while explicitly accounting for risk.
- To compare the efficiency of investment banks versus commercial banks.
Main Methods:
- Utilized Data Envelopment Analysis (DEA), a non-parametric frontier technique.
- Employed directional distance functions to model outputs and undesirable outputs (risk).
- Analyzed data from 124 Brazilian banks over a six-year period (2014-2019).
Main Results:
- The Brazilian banking industry demonstrates potential for increased output without additional input or higher risk levels.
- Significant scope exists for enhancing production efficiency across the sector.
- Investment banks exhibit higher efficiency compared to commercial banks.
Conclusions:
- Brazilian banks can achieve greater output with current resources by optimizing operations and managing risk effectively.
- Managerial performance is a key differentiator in bank efficiency, particularly favoring investment banks.
- The findings offer insights for regulatory bodies and bank management to improve overall banking sector performance.
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