Abstract:

Commercial banks have an important role in fund transfer mechanism besides they aim to operate efficiently while bearing various risks. Operational efficiency depends on risk minimisation. Banks tend to sell their non-performing loans (NPL) to asset management companies to lower their NPL ratios which are important indicators of asset qualities. In this study the effect of change in ratio during 2008-2015 period on bank efficieny is investigated. Directional distance function methodology is used to evaluate bank efficiency. Employees, assets and deposits are taken as input, ratio is taken as desirable output, loan and portfolio risks are taken as undesirable output. As a result it’s found that efficient banks aren’t effected form the sales of NPL while the efficiency of some non-efficient banks are positively affected. 

Keywords: