A0926
Title: Bank efficiency and credit risk: Evidence from the commercial banks in China
Authors: Kai Du - University Of Wollongong (Australia) [presenting]
Kai Sun - Shanghai University (China)
Abstract: Using commercial banks in China, the effect of credit risk is investigated on the production frontier and technical efficiency using a semi-parametric model of stochastic frontier analysis. The empirical results reveal that an increase in loan loss provision, as a proportion of the total assets, increases the labour productivity of a commercial bank but the increase in equity as a proportion of the total assets may not have a similar effect. In other words, an increase in the loan loss provision suggests that the quality of loans has worsened, but an increase in the equity ratio simply represents a decrease in financial leverage.
