Financial Management Perspective

Financial Management Perspective

Presentation of a scenario-based optimization model for bank loan portfolio under conditions of uncertainty based on robust Mulvey's approach

Document Type : Original Article

Authors
Mohadese Kouchaki Tajani 1
Reza Fallah 2
Mehdi Maranjory 2
Razieh Alikhani 2
1 Ph.D. Student in Accounting, Chalus Branch, Islamic Azad University, Mazandaran, Iran.
2 Assistant Prof, Department of Accounting, Chalous Branch, Islamic Azad University, Mazandaran, Iran.
10.52547/jfmp.11.35.67
Abstract
In order to maintain the balance of cash flow between lenders and borrowers, banks have to use a financially appropriate ecosystem. When such a flow is rebated and or disrupted by non-performing loans (NPLs), life trends of banks and implementation of national economic policies are damaged seriously. Mis management and flexibility in lending and repaying off a loans are considered a drive force of NPLs.The aim of present research is to present a model for the optimization of bank loans portfolio under conditions of uncertainty, which is based on the robust scenario-based approach developed by Mulvey et al. uncertainty criteria set in this study include such economic factors as exchange rates, inflation, and systematic risks. This model has three objective functions: (1) increasing the returns of banks by increasing current loan, (2) decreasing the credit risk, and (3) mitigating the risk of bankruptcy based on Altman Financial Ratios, which are analyzed by using GAMS software. Using this model, bank managers based on the status and strength of each type of loan under normal circumstances and uncertainty can make the right decision to pay a certain amount of each type of loan according to the optimal limit, which reduces the credit risk and bankruptcy of the bank. The results also show that respectively systematic risk, inflation rate and exchange rate have the greatest impact on loan quality reduction.
Keywords
Bank loans
Multi-objective optimization
Uncertainty conditions
Non-current loans
Overdue receivables
  1. Afolabi، S.، Obamuyi، T. M.، & Egbetunde، T. (2020). Credit Risk and Financial Performance: Evidence from Microfinance Banks in Nigeria. IOSR Journal of Economics and Finance، 11(1)، 8-15.
  2. Albadvi, A., Nakhaei Kamalabadi, I. & Eshtiaghy, F. (2015). A robust optimization approach to optimal allocation of marketing budgets in maximizing the CE. Novel Marketing Research, 5(1), 21-42.
  3. Andesfa،، & Masdupi، E. (2019، April). Effect of Financial Ratio on Profitability of Comercial Banks: A Systematic Literature Review. In 2nd Padang International Conference on Education، Economics، Business and Accounting (PICEEBA-2 2018). Atlantis Press.
  4. Awuitor، A. (2016). Optimizing banks’ loan portfolio in Ghana [a case study of Nkoranman Rural Bank، Sunyani] (Doctoral dissertation).
  5. Badarau, C., & Lapteacru, I. (2020). Bank risk, competition and bank connectedness with firms: A literature review. Research in International Business and Finance, 51, 101017.
  6. Bozorg asl, m., & akbari masule, a., & mohaghegh nia, m., & taqhavi fard, m. (2017). Investigating the impact of diversification strategy in assets and loans on bank return. Financial engineering and securities management (portfolio management), 8(30), 201-212. (in persian)
  7. Chankong،، & Haimes، Y. Y. (2008). Multiobjective decision making: theory and methodology. Courier Dover Publications.
  8. Clemente، D. (2020). Modeling Portfolio Credit Risk Taking into Account the Default Correlations Using a Copula Approach: Implementation to an Italian Loan Portfolio. Journal of Risk and Financial Management، 13(6)، 129.
  9. De Leon، V. (2020). The impact of credit risk and macroeconomic factors on profitability: the case of the ASEAN banks. Banks and Bank Systems، 15(1)، 21.
  10. Dehghan, A., Farhadi sharif Abad, M., Fahimi, A. (2019). Investigating the relationship between Default risk of banks and risk-return of their stocks in Tehran Stock Exchange. Journal of Investment Knowledge, 8(29), 241-256.
  11. ebrahimi, m. (2020). data mining algorithm in macro variable effects on stock markets in iran. journal of financial economics (financial economics and development), 13(49 ), 283-309. (in persian)
  12. Farsijani, H., Arefnezhad, M., Asadi, S., hasanvand, A. (2021). Presentation of the structural model of risk types in banks using the Fuzzy Interpretative Structural Modeling Approach. Journal of Financial Management Perspective, 11(33). (In Persian)
  13. Fazelian, S., Parvizian, K., Zakernia, E. (2014). Identifying and Prioritizing Systematic and Unsystematic Factors Increasing Non-Performing Loans in Iran’s Interest- Free (Riba-Free) Banking System; The case study of Sepah bank. Journal of Iran's Economic Essays, 11(22), 9-44. (In Persian)
  14. Ferdosi, M., Fotros, M. (2017). Impacts of Credit Risk and Liquidity Risk on Performance of Banks. Journal of Risk modeling and Financial Engineering, 2(1), 22-41. (In Persian)
  15. Ghosh،، Sen، K. K.، & Riva، F. (2020). Behavioral determinants of nonperforming loans in Bangladesh. Asian Journal of Accounting Research.
  16. Grigoli, F., Mansilla, M., & Saldías, M. (2018). Macro-financial linkages and heterogeneous non-performing loans projections: An application to Ecuador. Journal of Banking & Finance, 97, 130-141.
  17. Hakimipour, N. (2018). Assessing how banking factors affect non-current receivables of Iranian banks (GMM dynamic panel model approach). Financial Economics, 12 (42), 99-120. (In Persian)
  18. Hosseinpour, A, Dolah, A ,(2015). The effect of loan growth on credit risk of banks (Case study: Selected branches of Mellat Bank Bushehr Province). Quarterly Journal of Quantitative Economics, 12(4), 67-89. (In Persian)
  19. Janati mashkani, a., & arbabian, s., & khojasteh, z. (2016). The impact of macroeconomic determinants on banking stability and risk. Journal of monetary and banking researches, 9(29 ), 487-511. (in persian)
  20. Karadima, M., & Louri, H. (2021). Economic policy uncertainty and non-performing loans: The moderating role of bank concentration. Finance Research Letters, 38, 101458.
  21. karimi vardanjani،، hasan zadeh، H. (2020). Extracting and ranking the factors behind the banking system's deferred claims and proposing solutions(2011-2019). Financial Management Strategy، ()، -. doi: 10.22051/jfm.2020.30143.2311.
  22. Khalili, N (2017). The effect of macroeconomic variables on non-current receivables of the banking sector in Iran. Master Thesis. Payame Noor University, center of West Tehran. (In Persian)
  23. Khan، A.، Siddique، A.، & Sarwar، Z. (2020). Determinants of non-performing loans in the banking sector in developing state. Asian Journal of Accounting Research.
  24. J. and H. Sun (2013)، "Predicting Business Failure Using an RSF-based Case-based Reasoning Ensemble Forecasting Method"، Journal of Forecasting، 32(2)، pp. 180–192.
  25. Mali, M., Fallah, M., Saeedi, A. (2021). Desing and Explanation of the Reduction of Consequences of the Behavioral Finance Biases on the Banking System Recession.ـJournal of Financial Management Perspective, 11(33). (In Persian)
  26. Metawa،، Hassan، M. K.، & Elhoseny، M. (2017). Genetic algorithm based model for optimizing bank lending decisions. Expert Systems with Applications، 80، 75-82.
  27. mirzaei, h., & falihi, n., & mashhadian maleki, m. (2012). the effect of uncertainty rate of macro–economic variables (inflation and exchange rate) on credit risk legal entities of tejarat bank. journal of financial economics (financial economics and development), 6(18), 113-137. (In Persian)
  28. Orlova، V. (2020). Decision-Making Techniques for Credit Resource Management Using Machine Learning and Optimization. Information، 11(3)، 144.
  29. Shah، F. A.، Hussain، A.، Khan، M.، Jacquemod، J.، & Shah، Z. (2020). Determinants of Systematic Risk in Commercial Banks of Pakistan. International Journal of Economics and Financial Issues، 10(3)، 125-129.
  30. Soedarmono،، Sitorus، D.، & Tarazi، A. (2017). Abnormal loan growth، credit information sharing and systemic risk in Asian banks. Research in International Business and Finance، 42، 1208-1218.
  31. Syaifudin، H.، & Putri، E. R. (2019، December). The application of model predictive control on stock portfolio optimization without loan. In AIP Conference Proceedings (Vol. 2192، No. 1، p. 060020). AIP Publishing LLC.
  32. Tan، (2015). The Impacts of Risk and Competition on Bank Profitability in China. Journal of International and Financial Markets، Institut+ions and Money،(40)،85-110.
  33. Tushaj،، & Sinaj، V. (2020). The Effect of Banking Concentration on Non-Performing Loans: The Case of Albania. International Journal of Economics & Business Administration (IJEBA)، 8(2)، 433-442
Financial Management Perspective
Volume 11, Issue 35
Autumn 2021
Pages 67-90