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An assessment of asset and liquidity quality as indicators of performance within the European banking sector

Gleeson, Eva (2015) An assessment of asset and liquidity quality as indicators of performance within the European banking sector. Masters thesis, Dublin, National College of Ireland.

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Abstract

Almost a decade after the initial impact of the 2008 financial crisis, questions remain regarding the fundamentals of the European banking sector. This study investigates the relationship between asset quality and liquidity, and their impact on European bank performance. A longitudinal analysis is conducted using a number of financial ratios for the time period of 2009 to 2013. A non parametric method (Kruskal-Wallis H test) is employed in order to measure the impairment, liquidity and profitability of six hundred and twenty six banks against a European Central Bank benchmark. The results find statistically significant evidence to suggest that the impairment level is affecting the performance in the larger asset banks. However, the liquidity level appears to affect the larger asset class only when subject to external market factors such as a low net interest environment. When combining both poor asset and liquidity quality, the findings suggest that the larger asset banks are more affected by impairment quality and can absorb a poorer liquidity result provided normal market conditions prevail. The impact of impairment quality appears to differ when assessing the non large banks. These banks show a capacity to absorb bad debt losses, despite a growing percentage of impairment. This was an unexpected finding and indicates the relationship between performance and impairment differs, dependent on asset size. This also suggests that impairment as an indicator of performance is subject to certain caveats. Liquidity quality appears to impact the non large banks in a manner comparable to the large banks. This would suggest that the non large asset class can also absorb a combination of both poor impairment and liquidity results under normal market conditions. The empirical evidence presented can be used as a benchmark and a basis for further investigation into the factors that impact on European bank performance.

Item Type: Thesis (Masters)
Subjects: H Social Sciences > HG Finance > Banking
Divisions: School of Business > Masters of Science in Management
Depositing User: CAOIMHE NI MHAICIN
Date Deposited: 10 Oct 2015 15:11
Last Modified: 20 Jan 2016 14:03
URI: http://trap.ncirl.ie/id/eprint/2045

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