Measuring technical and allocative efficiencies for banks in the transition countries using the Fourier flexible cost function (original) (raw)
Related papers
Economic Modelling, 2017
This paper examines the efficiency of 116 banks for 9 new EU members in Central and Eastern European (CEE) countries over the period 2004-2015. We employ the Weight Assurance Region (WAR) and we treat deposits as an intermediate variable in a two-stage data-envelopment analysis model. We then expand the WAR model by including a window-based approach to take into account the patterns of efficiency over time. The results indicate a low level of efficiency over the entire period of analysis, especially for Eastern European and Balkan countries rather than Central European countries. Overall, we find that inefficiency in CEE countries is mainly driven by the profitability stage rather than the value added activity stage.
Economic Systems, 2017
In this study we compare the cost efficiency of banks in ten South East European countries and find out how differences in efficiency are related to EU membership. The results reveal a statistically significant cost efficiency gap between EU and non-EU banking systems in the region, where on average EU banking systems tend to be more cost efficient than their non-EU counterparts. In contrast to other similar studies analyzing banking efficiency in South East European countries, we also run b-convergence and s-convergence tests, as proposed in the literature. Based on these tests we can draw conclusions concerning the existence of a catching-up effect, since the detected cost efficiency gap is closing predominantly because of adjustments on the side of the less efficient banks. Additionally, we found that during the 2008 global financial crisis, the average cost efficiency scores of banks in the region improved, which could be explained by enhanced incentives of bank managers for intensified cost optimization in banks in crisis times. Our results suggest that the institutional adjustments in the non-EU countries should continue towards EU standards, as the EU banking systems tend to dominate in terms of measured cost efficiency.
A Comparative Study of Efficiency in Central and Eastern European Banking Systems
International journal of economics and finance, 2012
The European integration process has had a great impact on the macroeconomic environment of the new member states, some effects being more visible than other. In this context it becomes interesting to analyse if the EU ascension has triggered an increase of the banks efficiency from a series of CEE countries (two from the first wave and one from the second wave of EU expansion). The analysed period is between 2003 and 2010, covering the first years after the EU ascension of these countries. In order to estimate the efficiency of the banks from our sample we have used a non-parametric technique, namely the Data Envelopment Analysis. The overall results are suggesting that there is a slight increase of the banks operating in these countries estimated efficiency between 2007 and 2010.
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,
International Journal of Finance & Banking Studies (2147-4486), 2016
By drawing on Ukrainian experience, this paper analyzes the anatomy of bank efficiency in a transitional economy. Acknowledging the vast disparities in the business technology of different size banks, in this comprehensive study, we innovatively estimate group-specific (distinct) frontiers for small, medium, and large size banks. The results from separate frontiers reveal that Ukrainian banks record 38% technical inefficiency, 26% pure technical inefficiency, and 17% scale inefficiency on average. Apparently, banks in transition waste about the two fifths of their factor inputs during the production of financial services. The cardinal source of sub-performance in transitional banks seems to be managerial inefficiencies. We also found that banks operating in areas with more political influence and more developed infrastructure outperform the banks operating in politically and economically weaker regions. The results also indicate that larger banks, enjoying public trust in a risky business climate, dominate smaller banks in all forms of efficiency. However, such bias for size causes large banks to suffer from decreasing returns to scale and small banks from idle capacity. Consequently, the policies promoting consolidation between small and large banks may alleviate the excess (idle) capacity for large (small) banks in a transitional economy.
Applied Economics, 2016
We utilize the translog stochastic frontier model to estimate the cost-efficiency levels for conventional and Islamic, Cooperation Council (GCC) and non-GCC banks in the Middle East and North African (MENA) countries. The estimated cost-efficiency averages around 77% for those MENA banks, but with slight changes in this score for the individual countries. The results also show that the banks in the GCC countries are the most efficient in the region and the efficiency scores for the conventional and Islamic banks are similar. Finally, the recent financial crisis seems to have a slight impact on the observed efficiency scores of those banks.
Bank efficiency differences in the new EU member states
Baltic Journal of Economics, 2009
This article examines bank cost efficiency for five new EU Member States from Central and Eastern Europe and the three Baltic States for the period 1996-2006. The banking sectors in the selected set of countries had undergone a remarkable transformation before they achieved EU membership in 2004. We study cost efficiency differences between countries as well as efficiency improvements fostered by intense legislative and regulatory changes and extensive structural and institutional reforms carried out simultaneously. By employing the SFA approach an improvement in cost efficiency was discovered in the period investigated. Some noticeable differences in average cost efficiency among banking sectors can be detected as well. Empirical results also reveal certain significant associations of cost efficiency with country level macroeconomic characteristics, structure of the banking industry, and individual bank features. Analysis of correlating factors shows that the level of competition in the banking sector plays a more important role for cost efficiency improvements than the ownership structure itself. These results might be of interest to policy makers and regulatory authorities as they may provide help in detecting policy measures to create a business environment which would further enhance the cost efficiency of CEE banks.
X-Inefficiency of Commercial Banks in the Countries of Central, Eastern and South-Eastern Europe
Ekonomia i Prawo, 2014
It is sometimes attempted to measure the productive efficiency of the banking sector in a direct way. This approach uses the concept of X-inefficiency introduced by H. Leibenstein. In general, the X-inefficiency is the difference between efficient behaviour of the supplier and his real behaviour. One of the main reasons for the existence of X-inefficiency is the lack of competitive pressure, due to which the maximization of profit ceases to be a precondition of market survival. This may lead to wasting resources. X-inefficiency exists when the cost of the production of a given good by the supplier is bigger than the lowest possible cost of producing this good.
What drives bank performance in transitions economies? The impact of reforms and regulations
Research in International Business and Finance, 2017
This paper investigates the effects of financial regulations and structural reforms on credit, labor and business markets on the cost efficiency of the banking industry in 10 Central and Eastern Europe (CEE) countries for the period 2004 to 2009. Cost efficiency scores are estimated using stochastic frontier analysis, whilst panel regressions examine the impact of regulation and liberalisation using the EBRD transitional reform indicator and the Fraser economic freedom index. By considering both indexes we are able to account for the effects of progress towards more sound banking practices as well as the impact of the credit market, labor market and business sector regulatory regimes on bank efficiency. In doing so, we recognize the important complementarities arising from progress towards (1) more effective banking supervision and regulation and (2) enterprise sector reforms inclusive of creditor protection rights and sound governance practices for bank performance. Our empirical analysis shows that structural reforms on labor and business markets exert a positive impact on bank performance. However, reforms in the banking sector have a negative effect if not accompanied by regulatory and supervisory safeguards to avoid excessive lending.
Determinants of Commercial Bank Performance in Transition
2002
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. WPI02I146 Banking sectors in transition economies have experienced major transformations throughout the 1990s. While some countries have been successful in eliminating underlying distortions and restructuring their financial sectors, in some cases financial sectors remain underdeveloped and the rates of financial intermediation continue to be low. We estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries. In addition to stressing the importance of some bank-specific variables, the censored Tobit analysis suggests that (1) foreign ownership with controlling power and enterprise restructuring enhances commercial bank efficiency; (2) the effects of prudential tightening on the efficiency of banks vary across different prudential norms; and (3) consolidation is likely to improve the efficiency of banking operations. Overall, the results confirm the usefulness of DEA for transition-related applications and shed some light on the question of the optimal architecture of a banking system.