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Efficiency of the Bulgarian Banking System: Traditional Approach and Data Envelopment Analysis

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  • Nikolay Nenovsky

    ()

  • Petar Chobanov

    ()

  • Gergana Mihaylova

    ()

  • Darina Koleva

    ()

Abstract

The present paper traces the trends in the development of the Bulgarian banking system focusing on the dynamics of bank efficiency. Although the financial crisis in 1996-1997 and the following shift in monetary regime (introduction of Currency Board Arrangement) exerted significant influence on the development of the banking sector characteristics, the study covers only the period of 1999-2006 because of the lack of consistent available data prior to 1999. During the period analysed, the impact on bank efficiency of the following factors is studied: change in property, penetration of foreign commercial banks on the local banking market, competition, structure of bank assets and liabilities, central bank policy in regard to credit activity, etc. The limits of traditional accounting approaches to bank efficiency evaluation are discussed, as well as the implementation of non-parametric methods, in particular Data Envelopment Analysis (DEA). Different specifications of DEA like the intermediation and operating approaches were applied to separate groups and sub-groups. The results show that: firstly, foreign banks perform better than domestic and state-owned banks because of the technological and managerial improvements; and secondly, large banks are more efficient than small banks due to decreasing operating costs and scale economies.

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File URL: http://www.icer.it/docs/wp2008/ICERwp22-08.pdf
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Bibliographic Info

Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 22-2008.

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Length: 33 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:icr:wpicer:22-2008

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Keywords: DEA; bank efficiency; Bulgarian banking system; foreign banks;

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References

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  1. Panayiotis P. Athanasoglou & Matthaios D. Delis & Christos K. Staikouras, 2006. "Determinants of Bank Profitability in the South Eastern European Region," Working Papers 47, Bank of Greece.
  2. Michael Berlemann & Kalin Hristov & Nikolay Nenovsky, 2002. "Lending of Last Resort, Moral Hazard and Twin Crises: Lessons from the Bulgarian Financial Crisis 1996/1997," William Davidson Institute Working Papers Series 464, William Davidson Institute at the University of Michigan.
  3. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
  4. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series 1997-11, Board of Governors of the Federal Reserve System (U.S.).
  5. David A. Grigorian & Vlad Manole, 2002. "Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis," IMF Working Papers 02/146, International Monetary Fund.
  6. Havrylchyk, Olena & Jurzyk, Emilia, 2006. "Profitability of foreign banks in Central and Eastern Europe: Does the entry mode matter?," BOFIT Discussion Papers 5/2006, Bank of Finland, Institute for Economies in Transition.
  7. Malgorzata Pawlowska, 2005. "Competition, Concentration, Efficiency, and their Relationship in the Polish Banking Sector," National Bank of Poland Working Papers 32, National Bank of Poland, Economic Institute.
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Cited by:
  1. Nikolay Nenovsky & Martin Ivanov & Gergana Mihaylova, 2008. "The Evolution of Bulgarian Banks' Efficiency During the Twenties: A Dea Approach," Working Papers 82, Bank of Greece.
  2. Kiril Tochkov & Nikolay Nenovsk, 2010. "Institutional Reforms, EU Accession, and Bank Efficiency: Evidence from Bulgaria," Working Papers 201005, Texas Christian University, Department of Economics.
  3. Kiril Tochkov & Nikolay Nenovsky, 2009. "Efficiency of commercial banks in Bulgaria in the wake of EU accession," ICER Working Papers 21-2009, ICER - International Centre for Economic Research.
  4. Evgeni Genchev, 2012. "Effects of market share on the bank’s profitability," Review of Applied Socio-Economic Research, Pro Global Science Association, vol. 3(1), pages 87-94, July.
  5. Katerina Voycheska, 2011. "Empirical Research on the Banking Efficiency in R. Macedonia," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 73-93.

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