Evaluation on the Credit Risk Efficiency of Companies in M a laysia with Enhanc ed Da- ta Envelopment Analysis Model

Agnes Lai Jing Xin, Lam Weng Hoe, Lam Weng Siew

A sound financial system is the key to economic stability and growth. Failure of one financial firm may spill over to other companies, undermining the strength of the financial system. While financial institutions face financial difficulties for myriad reasons, credit risk still remains to be the leading source of problems in the financial sector. In such case, it is of practical significance to have an efficient credit risk management system. The objective of this paper is to propose an enhanced Data Envelopment Analysis (DEA) model by incorporat-ing market risk in the evaluation of credit risk efficiencies of 20 financial institutions listed in Bursa Malaysia Stock Market from 2000 to 2017. Empirical results obtained from the enhanced DEA model show that BIMB, INSAS, KENANGA, LPI, MAA, MANULFE, MAYBANK, MNRB, P&O, PBBANK, and TA are found to be efficient in managing credit risk. In particular, the efficient companies became benchmarks of performance, re-porting potential improvements for the inefficient companies. To a certain extent, this reflects the financial per-formance of the companies where the interaction between credit risk and market risk is considered, which sets it apart from models found in existing literature.

Volume 11 | 12-Special Issue

Pages: 30-38