Advanced Search
MyIDEAS: Login to save this paper or follow this series

Production Technology of Malaysian Commercial Banks: The Estimation of Stochastic Cost Functions Adjusted to The Non-Performing Loans

Contents:

Author Info

  • Okuda, Hidenobu
  • Hashimoto, Hidetoshi
  • Murakami, Michiko

Abstract

Little microeconomic analysis of the banking business in Malaysia has been conducted. The only known serious academic research in this area is by Katib et al. (2000). This paper contributes to the expansion of the results of the empirical study by Katib et al.. (2000)., in two respects. Firstly, different form Katib et al.. (2000) using Data Envelop Analysis (DEA) based on a non-parametric approach. in this paper, we have estimated the cost function of Malaysian commercial banks with respect to almost the same analysis period, availing ourselves of SEA analysis based on a parametric approach. The second contribution of this paper is that the estimation also factors in the existence of bad debts, which is ignored by Katib et al.. (2000). The difference in the quality of finance reflecting the difference in the management policies adopted is hard to discern when the economy is in good shape. However, as the economic situation deteriorates, bad debts come to the surface and the profitability of banks that have engaged in dubious financing deteriorates as debt arrears. In this paper, we have assumed a set of several different amounts of sound credit for individual banks, and made an estimation of the cost function for each case. In our analysis, neither economies of scale nor economies of scope, which are said to be intrinsic to the banking industry, were observed for commercial banks in Malaysia. If the view that economies of scale and economies of scope are observed in efficient bank management is correct, then it is safe to assume that the management of domestic banks in Malaysia must be inefficient. Moreover, no technological progress was observed in that cost declined over time despite the fact that the capital equipment ratio increased and labor productivity rose in the first half of the 1990s. In studies on developed countries, a decline in cost is observed over time in a competitive market, as is progress in labor saving technology due to investment in modernization. Our observation results suggest that Malaysian domestic banks were making unproductive capital investment. No essential changes occurred in the analysis even when it was conducted assuming several different amounts of sound credit, i.e. factoring in the quality of credit. Moreover, on comparing our results with those of the earlier study by Katib et al.. (2000)., based on DEA, we have found no inconsistency between the two.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/16939/1/070econDP02-04.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2002-04.

as in new window
Length: 36 p.
Date of creation: May 2002
Date of revision:
Handle: RePEc:hit:econdp:2002-04

Note: May 15, 2002, This paper is prepared for the Convention of the 14th Annual APFA/PACAP/FMA Finance Conference that is to be held in Tokyo, Japan, on July 14-17, 2002.
Contact details of provider:
Phone: +81-42-580-8000
Web page: http://www.econ.hit-u.ac.jp/
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Demirguc-Kunt, Asli & Huizinga, Harry, 2000. "Financial structure and bank profitability," Policy Research Working Paper Series 2430, The World Bank.
  2. Ghani, Ejaz & Suri, Vivek, 1999. "Productivity growth, capital accumulation, and the banking sector - some lessons from Malaysia," Policy Research Working Paper Series 2252, The World Bank.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Williams, Jonathan & Nguyen, Nghia, 2005. "Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2119-2154, August.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hit:econdp:2002-04. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Resources Section, Hitotsubashi University Library).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.