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Measuring Bank Efficiency and Market Power in the Household and Corporate Credit Markets Considering Credit Risks

Author

Listed:
  • Zsuzsanna Hosszú

    (Magyar Nemzeti Bank (MNB, the central bank of Hungary), Budapest, Hungary
    PhD student at Corvinus University of Budapest, Budapest, Hungary)

  • Bálint Dancsik

    (Magyar Nemzeti Bank (MNB, the central bank of Hungary), Budapest, Hungary)

Abstract

The aim of this paper is to estimate the efficiency of Hungarian banks with several models and to calculate the Lerner index for both the household and the corporate credit market. We apply stochastic frontier analysis (SFA) and data envelopment analysis (DEA) models to estimate the efficiency and calculate profit and cost efficiency with and without taking credit losses into consideration. In terms of cost efficiency, banks are nearly homogeneous and improved their efficiency after the crisis. Banks, however, are extremely heterogeneous in terms of profit efficiency. During the crisis, a gradual improvement could be observed across the sector after the initial downturn. Since the operating conditions of the household and the corporate credit markets are different, we estimated the intensity of competition separately for both the markets. While the Lerner index showed strong market power in the household credit market, the corporate credit market was characterised by intense competition. Regarding efficiency, various models often resulted in different conclusions, especially in the case of cost efficiency. Therefore we recommend that the regulatory decision-making process should always consider the results of several models. Moreover, the Lerner indices demonstrate that it might be important to use disaggregated models when modelling the features of credit markets.

Suggested Citation

  • Zsuzsanna Hosszú & Bálint Dancsik, 2018. "Measuring Bank Efficiency and Market Power in the Household and Corporate Credit Markets Considering Credit Risks," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 68(2), pages 175-207, June.
    • Handle: RePEc:aka:aoecon:v:68:y:2018:i:2:p:175-207
    Note: We are grateful to Tamás Briglevics and Ádám Reiff for their valuable comments and suggestions.
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    Citations

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    Cited by:

    1. M.V. Leonov, 2021. "Review of Modern Approaches for Assessing the Effectiveness of Banking," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 20(2), pages 294-326.
    2. Iveta Palečková, 2019. "Cost Efficiency Measurement Using Two-Stage Data Envelopment Analysis in the Czech and Slovak Banking Sectors," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 69(3), pages 445-466, September.
    3. Dancsik, Bálint & Marosi, Anna & Szabó, Beáta, 2022. "Túl drága az olcsó hitel - a családi otthonteremtési kedvezmény támogatott hitelkamatainak vizsgálata [Cheap loans are too expensive: an examination of interest rates on subsidised housing loans]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1493-1506.

    More about this item

    Keywords

    bank efficiency; frontier analysis; Lerner index; credit markets; credit risks; Hungary;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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