An Incentive for Risk Taking: The Case of Banks in ASEAN 6

Thanh Phu Ngo


Incorporating credit risk into technical efficiency to investigate possible effects of the risk on efficiency for a sample of 276 unique ASEAN commercial banks over the period 2000 -2015, we find a striking U-shaped effect of credit risk on both risk-free efficiency and risk-adjusted efficiency. The U-shaped relationship exists in both large banks and small banks. This finding is new and raises a concern for bank regulators in monitoring and controlling bank risks since banks have an incentive to become more efficient by following greater risk-taking strategies.

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Research in World Economy
ISSN 1923-3981(Print)ISSN 1923-399X(Online)


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