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Bank efficiency in transition economies: recent evidence from South-Eastern Europe

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Author Info

  • Fang, Yiwei

    ()
    (Lally School of Management and Technology, New York)

  • Hasan, Iftekhar

    ()
    (Lally School of Management and Technology, New York, and Bank of Finland Research)

  • Marton, Katherin

    ()
    (Fordham University, New York)

Abstract

This study examines the cost and profit efficiency of banking sectors in six transition countries of South-Eastern Europe over the period 1998–2008. Using the stochastic frontier approach, our analysis reveals that the average cost efficiency of SEE banks is 68.59% and the average profit efficiency is 53.87%. The second-stage regressions on the determinants of bank efficiency further show that foreign banks are associated with higher profit efficiency but moderately lower cost efficiency. Government banks are associated with lower profit efficiency. The efficiency gap between foreign banks, domestic private banks and government banks, however, has narrowed over time. We also find that the degree of individual banks’ competitiveness has a positive association with both cost and profit efficiency. Finally, institutional development, proxied by progress in banking reforms, privatization and corporate governance restructuring, also has a positive impact on bank efficiency.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/BoF_DP_1105.pdf
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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 5/2011.

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Length: 43 pages
Date of creation: 14 Mar 2011
Date of revision:
Handle: RePEc:hhs:bofrdp:2011_005

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: transition banking; bank efficiency; foreign ownership; institutional development;

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References

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  1. de Haas, Ralph & van Lelyveld, Iman, 2006. "Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1927-1952, July.
  2. Anca Pruteanu-Podpiera & Laurent Weill & Franziska Schobert, 2008. "Banking Competition and Efficiency: A Micro-Data Analysis on the Czech Banking Industry," Comparative Economic Studies, Palgrave Macmillan, vol. 50(2), pages 253-273, June.
  3. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, vol. 13(2), pages 379-408, May.
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Cited by:
  1. Jose L. Gallizo & Jordi Moreno & Ioana Iuliana Pop (Grigorescu), 2011. "Banking Efficiency And European Integration. Implications Of The Banking Reform In Romania," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(13), pages 25.
  2. Fang, Yiwei & Hasan, Iftekhar & Marton, Katherin, 2014. "Institutional development and bank stability: Evidence from transition countries," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 160-176.
  3. Tabak, Benjamin M. & Miranda, Rogério Boueri & Fazio, Dimas M., 2013. "A geographically weighted approach to measuring efficiency in panel data: The case of US saving banks," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3747-3756.
  4. Georgios Efthyvoulou & Canan Yildirim, 2013. "Market Power in CEE Banking Sectors and the Impact of the Global Financial Crisis," CASE Network Studies and Analyses 0452, CASE-Center for Social and Economic Research.
  5. Crowley , Patrick M & Hughes Hallett, Andrew, 2011. "The great moderation under the microscope: decomposition of macroeconomic cycles in US and UK aggregate demand," Research Discussion Papers 13/2011, Bank of Finland.
  6. Diana Fernández Moreno & Dairo Estrada, . "Colombian bank efficiency and the role of market structure," Temas de Estabilidad Financiera 076, Banco de la Republica de Colombia.
  7. Paloviita, Maritta & Kinnunen, Helvi, 2011. "Real time analysis of euro area fiscal policies: adjustment to the crisis," Research Discussion Papers 21/2011, Bank of Finland.
  8. Tabak, Benjamin M. & Fazio, Dimas M. & Cajueiro, Daniel O., 2013. "Systemically important banks and financial stability: The case of Latin America," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3855-3866.
  9. Fungácová, Zuzana & Pessarossi , Pierre & Weill , Laurent, 2012. "Is bank competition detrimental to efficiency? Evidence from China," BOFIT Discussion Papers 31/2012, Bank of Finland, Institute for Economies in Transition.
  10. Marko Malovic & Svetislav Paunovic, 2012. "Flow of Funds in balkan Banks: Narrow Banking or Narrow Escape?," Book Chapters, Institute of Economic Sciences.

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