Abstract
Commercial banks' credit risk management is a function that focuses on events that may affect the achievement of objectives. Improper management will result in negative consequences or results. Therefore, banks usually pay more attention to events with a higher probability and impact of a direct loss of revenue and capital than events that may result in positive effects. This research adopts secondary data and seeks to analyze credit risk management of commercial banks in Kosovo through a developed DEA (Data Envelopment Analysis) model. The study covers seven commercial banks in Kosovo for the period 2008-2016 and uses Tobit regression to determine credit risk efficiency. The estimation results show a statistically significant positive relationship between bank efficiency, capital adequacy, and loans. Moreover, the study found that banks' efficiency factors, including profitability, deposits, costs, banks size, GDP growth, and inflation, are not statistically significant.
Highlights
For the credit risk assessment of banks in our sample, the results are derived from financial reports. They are oriented to the data envelopment analysis (DEA) model, where we evaluated the technical efficiency of credit risk (CR-Technical Efficiency (TE)), Credit Risk Allocation Efficiency (CR-AE), and Credit Risk Cost Efficiency (CR-CE)
From the results, we conclude that expenditures for commercial banks of Kosovo are negatively correlated with statistical significance in technical and allocative efficiency while having a positive relationship with cost efficiency but not statistically significant
This study has shown that Kosovo's commercial banks during this study period had more allocative efficiency than technical and cost-efficiency
Summary
It was established after the war period of 1999, along with other institutions. Banks provide the bulk of the money supply, offering credit facilities (Omankhanlen, Alex, 2012). They serve as a mechanism for developing the country's monetary policy (Peek & Rosengren, 2012). To play an essential role in the economic system, banks must be efficient in transforming the inputs and outputs of financial products and services. The commercial banks’ credit risk efficiency: Empirical evidence from Kosovo banks can promise a real return on investment and reduce bankruptcy probability. The paper's structure consists of the following sections: Introduction, literature review, methodology, data selection of variables, analysis, results, and conclusion
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