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Balancing bank profits and nonperforming loans: a multiple objective programming approach

Author

Listed:
  • Sabri Boubaker

    (EM Normandie Business School, Métis Lab
    Vietnam National University
    Swansea University)

  • Tu D. Q. Le

    (University of Economics and Law
    Vietnam National University)

  • Riadh Manita

    (NEOMA Business School)

  • Thanh Ngo

    (Massey University
    VNU University of Economics and Business)

Abstract

The recent operations research literature has witnessed an increasing trend of studies on banking efficiency, whereas nonperforming loans (NPLs) are often treated as undesirable output. A trending approach is to decompose the bank production into different processes or departments in charge of different inputs and outputs under the so-called network data envelopment analysis, in which a loan production department oversees both good and bad loans. This paper proposes a novel way to decompose the bank into two departments: one oversees profit maximization, and the other monitors NPLs minimization, making the bank’s main function multiple objective programming (MOP). We applied a MOP approach to examine the departmental and overall performance of 30 Vietnamese banks during 2019‒2021 and understand the factors that influence their performance. We found that the banks had their profit maximization performance improved. Still, NPLs minimization performance deteriorated during the examined period, indicating that the bad loans issue remains a threat to the industry. As such, balancing profits and NPLs is increasingly important for Vietnamese banks, with a focus on their risk management i.e., regarding the NPLs.

Suggested Citation

  • Sabri Boubaker & Tu D. Q. Le & Riadh Manita & Thanh Ngo, 2025. "Balancing bank profits and nonperforming loans: a multiple objective programming approach," Annals of Operations Research, Springer, vol. 346(2), pages 839-860, March.
  • Handle: RePEc:spr:annopr:v:346:y:2025:i:2:d:10.1007_s10479-024-05831-x
    DOI: 10.1007/s10479-024-05831-x
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    Keywords

    Multiple objective programming (MOP); Data envelopment analysis (DEA); Profit maximization; Non-performing loans minimization; Vietnamese banks;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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