Title: Disentangling the Texas ratio: the case of the Italian banking sector

Authors: Andrea Ferrarin; Maurizio Polato; Giulio Velliscig

Addresses: Department of Economics and Statistics, University of Udine, Via Tomadini 30/A, Udine, Italy ' Department of Economics and Statistics, University of Udine, Via Tomadini 30/A, Udine, Italy ' Department of Economics and Statistics, University of Udine, Via Tomadini 30/A, Udine, Italy

Abstract: According to the ECB, the Texas ratio represents a key performance indicator that shows the dependency between the NPLs and the level of bank capitalisation. Using a sample of twelve Italian listed banks, we disentangle the main drivers of the Texas ratio and evaluate its impact on profitability, probability of default and price-to-book value. Our findings question the overall effectiveness of the restructuring measures undertaken by both supervisory and regulatory authorities to cope with the NPLs' issue.

Keywords: Texas ratio; non-performing loan; NPL; provisioning; profitability.

DOI: 10.1504/IJMFA.2020.112335

International Journal of Managerial and Financial Accounting, 2020 Vol.12 No.3/4, pp.217 - 241

Received: 09 May 2019
Accepted: 03 May 2020
Published online: 12 Jan 2021 *

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