Roman Matousek

EU Banks Rating Assignments: Is there Heterogeneity between New and Old Member Countries?

We model EU countries’ bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether “old” and “new” EU countries are rated differently and to determine whether “new” ones are assigned lower ratings, ceteris paribus, than “old” ones. We find that country-specific factors (in the form of heterogeneous intercepts) are a crucial determinant of ratings. Whilst “new” EU countries typically have lower ratings than “old” ones, after controlling for financial variables we also discover that all countries have significantly different intercepts, confirming our prior belief. This intercept heterogeneity suggests that each country’s rating is assigned uniquely, after controlling for differences in financial factors, which may reflect differences in country risk and the legal and regulatory framework that banks face (such as foreclosure laws). In addition, we find that ratings may respond differently to the liquidity and operating expenses to operating income variables across countries. Typically ratings are more responsive to the former and less sensitive to the latter for “new” EU countries compared with “old” EU countries.

Technical efficiency in Saudi banks

This study analyses the technical efficiency of Saudi banks using a two-stage DEA-data envelopment analysis approach. In the first stage, we use a bootstrapped DEA-VRS model to identify the efficiency scores, and in the second stage, we use a bootstrapped truncated regression model to identify the covariates that explain technical efficiency. Policy implications are derived.

Modelling Bank Performance: A Network DEA Approach

In this paper, we develop a bank network revenue function to evaluate banks’ network revenue performance. The bank network revenue function, which extends the environmental revenue function and the two-stage network cost function, is constructed as the difference between total revenue and the reserves for possible loan losses to incorporate the roles played by non-performing loans in bank production. The second part of the paper then applies Nerloves revenue inefficiency model. We consider revenue maximization in two stages. We apply this function to Japanese banks operating from September 2000 to March 2013.

A note comparing support vector machines and ordered choice models' predictions of international banks' ratings

We find that support vector machines can produce notably better predictions of international bank ratings than the standard method currently used for this purpose, ordered choice models. This appears due to the support vector machines ability to estimate a large number of country dummies unrestrictedly, which was not possible with the ordered choice models due to the low sample size.

Are rating agencies' assignments opaque? Evidence from international banks

We compare the ability of ordered choice models and support vector machines to model and predict international bank ratings. Although support vector machines can identify significant determinants we argue that ordered choice models are more reliable for this. Our findings suggest that ratings reflect a banks financial position, the timing of rating assignment and a banks country of origin. Accounting for country effects substantially improves predictive performance. We find that support vector machines can produce considerably better predictions of international bank ratings than ordered choice models due to the formers ability to estimate a large number of country dummies unrestrictedly.

Direct Inflation Targeting and Nominal Convergence: The Czech Case

This study analyses the impact of direct inflation targeting (DIT) on monetary policy credibility in the Czech Republic, as evidenced by asset prices. It examines the effect of changes in the two-week repo rate (the official interest rate) on short and long–term market interest rates. It assumes the asymmetry of information and the existence of a stationary stochastic equilibrium with full knowledge of authorities reaction function. We find that at short maturities, the coefficients for changes in the official repo rate are lower in the DIT period than in the pre-crisis period. This implies that the hypothesis of no increase in the transparency of monetary policy with the introduction of DIT can be rejected. We find that bond yields and interest rate swap rates with maturities of 5 years and longer did not react significantly to official interest rate decisions in the DIT period. This is consistent with the hypothesis that monetary policy was credible both before and after introduction of DIT.

CEO compensation and bank efficiency: An application of conditional nonparametric frontiers

The paper investigates in a dynamic context the effect of Chief Executive Officer (CEO) bonus and salary payments on banks’ technical efficiency levels. Our methodological framework incorporates the latest developments on the probabilistic approach of efficiency measurement as introduced by Bădin et al. (2012). We apply time-dependent conditional efficiency estimates to analyse a sample of 37 US banks for the period from 2003 to 2012. The empirical evidence reveals a non-linear relationship between CEO bonus and salary payments and banks’ efficiency levels. More specifically it is reported that salary and bonus payments affect differently banks’ technological change and technological catch-up levels. Finally, the empirical evidence suggests that higher salary and bonus payments are not always aligned with higher technical efficiency levels.

Efficiency and scale economies in banking in new EU countries

In this paper, we provide empirical evidence on bank cost-efficiency in transition countries. Our estimates of the cost-efficiency using a distribution-free approach suggests that among the countries analysed, Estonia, Latvia and Slovenia display the highest X-efficiency while the Czech Republic and Poland show the lowest X-efficiency. Reported X-inefficiency is found to be lowest in the segment of foreign banks that were on average more efficient than other banks. The efficiency of small and foreign banks was also higher when compared with large state-owned banks. Results also indicate that economies of scale decrease with bank size.

A note on ratings of international banks

Purpose - The purpose of this paper is to analyse the quantitative determinants of individual ratings of commercial banks (as conducted by Fitch Ratings). Design/methodology/approach - The ordered probit model is applied as an extension of the standard binary probit model. The model is estimated using a sample of 681 international banks. Findings - Banks with a greater capitalisation, larger assets, and a higher return on assets have higher bank ratings. Further, the greater is a banks liquidity, the larger is its net interest margin and the more is the ratio of its operating expenses to total operating income the lower is a banks rating. Originality/value - Modelling the determinants of international bank ratings spanning a sample of 90 countries. Applying a model with dynamics that considers whether the rating is determined by information up to four years prior to the rating date.

Management of Non-Performing Loans in Eastern Europe

Abstract The objective of the study is twofold. First, the paper aims to provide a critical analysis of the various methods used in resolving banking crises in Central and Eastern Europe Countries (CEEs). Secondly, it offers an estimate of what would have been the optimal way of resolving crises in state-owned commercial banks (SOBs) and small and medium sized commercial banks (SMBs) in the Czech Republic, Hungary, and Poland. The analysis shows bad loans clean up have turned out to be awkward. A delay in restructuring increased costs and required a stronger response. Examining the experience of these three countries, no firm conclusion can be drawn about the optimal crisis resolution in the banking sector in transition. Looking back, we could argue about the essential elements of an optimal resolution, though Hungary has adopted a quasi-optimal crisis resolution.