Determinants of Commercial Bank Performance in Transition (original) (raw)
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Comparative Economic Studies, 2006
Banking sectors in transition economies have variables. In addition to stressing the importance of some experienced major transformations throughout the bank-specific variables, the censored Tobit analysis 1990s. While some countries have been successful in suggests that: eliminating underlying distortions and restructuring their * Foreign ownership with controlling power and financial sectors, in some cases financial sectors remain enterprise restructuring enhance commercial bank underdeveloped and the rates of financial intermediation efficiency. continue to be quite low. * The effects of prudential tightening on the efficiency Grigorian and Manole estimate indicators of of banks vary across different prudential norms. commercial bank efficiency by applying a version of Data * Consolidation is likely to improve efficiency of Envelopment Analysis (DEA) to bank-level data from a banking operations. wide range of transition countries. They further extend Overall, the results confirm the usefulness of DEA for the analysis by explaining the differences in efficiency transition-related applications and may shed light on the between financial institutions and countries by a variety optimal architecture of a banking system. of macroeconomic, prudential, and institutional This paper-a product of the Private and Financial Sector Development Unit, Europe and Central Asia Region-is part of a larger effort in the region to disseminate the results of research on transition issues. Copies of the paper are available free from the World Bank,
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This paper examines the performance of 515 banks in 16 transition economies for the years 1994-99 based on their public financial accounts. We first examine lending behaviour and probability distribution of bank profitability to determine whether these banks exhibit behaviour and performance associated with excessive risk-taking. While we do not find evidence of excessive risk-taking on average where there is significant progress in banking and related enterprise reforms, there may be a minority of poorly capitalised banks that do take excessive risks, particularly where progress in reform is less advanced. The paper then estimates cost and revenue functions based on a model of banks as multi-product firms. The results indicate that banks' performance differs significantly depending on the reform environment, as well as the competitive conditions, in which they operate. Banks with high market shares have higher costs and achieve lower margins on their loan and deposit activities. Where there has been significant progress in banking and related enterprise reforms, banks are making comfortable margins on loans and appear to be offering competitive margins on deposits, though they are still achieving overall negative returns on equity. By contrast, when substantial reforms have not been undertaken, banks have been sustaining high negative returns on loans, largely at the expense of depositors; in effect they have been able to appropriate much of the tax that inflation levies on nominal deposits, and have been using this revenue to prop up their weak loan portfolios. Overall interest margins are declining over time but are substantially higher in low-reform environments. The results indicate that an appropriate policy and regulatory framework may be a necessary condition for significant progress to be made.
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The recent years' crisis has affected the Western Balkan economies. The deterioration of macroeconomic indicators was reflected particularly in the banking sector developments as main segment of their financial systems. Referring to the results of previous personal study (Varesi, L., 2014), the banking efficiency, profitability, liquidity, capital adequacy ratios fell during the crisis period compared with that before. The lending remained low despite the continuous reduction of interest rates due to the contraction of these economies. Fluctuations, instability and uncertainties increase the vulnerabilities of financial systems and complicates the banking sector supervision and enforcement of banking regulations. This paper aims to examine the technical efficiency of the banking sector of six Western Balkan countries considered each as a Decision Making Unit, using Data Envelopment Analysis and the intermediation approach according to Avkiran, N.K.,(2006). The paper intends to present differences in the estimated efficiencies to the variables used in representing the size of the banking sector by number of branches, total assets and total loans. The evaluation of efficiencies refers to the year 2007 to 2012. The effects of 2008 crises in the efficiency of banking sector of WB countries are also examined in this comparative study.
The recent years' crisis has affected the Western Balkan economies. The deterioration of macroeconomic indicators was reflected particularly in the banking sector developments as main segment of their financial systems. Referring to the results of previous personal study (Varesi, L., 2014), the banking efficiency, profitability, liquidity, capital adequacy ratios fell during the crisis period compared with that before. The lending remained low despite the continuous reduction of interest rates due to the contraction of these economies. Fluctuations, instability and uncertainties increase the vulnerabilities of financial systems and complicates the banking sector supervision and enforcement of banking regulations. This paper aims to examine the technical efficiency of the banking sector of six Western Balkan countries considered each as a Decision Making Unit, using Data Envelopment Analysis and the intermediation approach according to Avkiran, N.K.,(2006). The paper intends to present differences in the estimated efficiencies to the variables used in representing the size of the banking sector by number of branches, total assets and total loans. The evaluation of efficiencies refers to the year 2007 to 2012. The effects of 2008 crises in the efficiency of banking sector of WB countries are also examined in this comparative study.
International Journal of Finance & Banking Studies (2147-4486), 2016
By employing non-parametric methods, namely Data Envelopment Analysis and Malmquist Index, this paper investigates efficiency of banks using a database of almost all banks in four countries in SouthEast Europe. The superior efficiency of foreignowned banks in intermediation is supported. It is argued that the improvement in efficiency of banks originated from the change in technology rather than scale and technical efficiency, and banks on average have not been able to catch-up with best-performers, thus widening the efficiency gap. The largest sources of inefficiency are found to be cost and scale inefficiencies and lending shortfalls. Because of its peculiarities, Kosovo banking sector is assessed relative to other economies. Findings suggest that despite some improvements, the banking system in Kosovo remained less efficient. A number of policy implications emanate from the findings, aiming at enhancing the intermediation efficiency of banks in the context of SouthEast European transition.
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