Journal of Economics and Business

ISSN 2615-3726 (Online)

ISSN 2621-5667 (Print)

Published: 14 December 2020

Does Risk-Taking Behaviour Matter for Bank Efficiency?

Florence Chepngenoh, Peter W Muriu

University of Nairobi, Kenya

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10.31014/aior.1992.03.04.302

Pages: 1549-1557

Keywords: Bank Efficiency, Credit Risk, Liquidity Risk, Capital Risk, DEA

Abstract

In pursuit of financial intermediation between borrowers and savers banks are exposed to various risks which affect efficiency. Using annual panel data for the period 2010 to 2019, this paper investigates the influence of risk-taking behaviour on bank efficiency in a developing economy. Data envelopment analysis technique was used to obtain the profit efficiency scores of each bank and Tobit regression to estimate the impact of various components of bank risks on profit efficiency. Estimation results established that credit and liquidity risks, significantly influence bank efficiency. Therefore, banks should maintain quality assets and a stable liquidity position as they significantly impact on efficiency.

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