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The Relationship between Bank Efficiency and Risk and Productivity Patterns in the Romanian Banking System

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  • Mihai Nitoi

    () (Institute of World Economy, Romanian Academy.)

  • Cristi Spulbar

    () (Department of Finance, University of Craiova. Corresponding author.)

Abstract

Using a data envelopment model and an input slack-based productivity index, we investigate commercial banks' cost efficiency and productivity patterns in the Romanian banking system over the period of 2005 to 2011. In a second stage, we assess the determinants of efficiency, emphasizing the relation between efficiency and risks. In the Romanian banking system, the relationship between concentration and efficiency supports Hicks’s ‘quiet life hypothesis’. With respect to the impact risk factors on efficiency, we find that a lower failure risk and a higher liquidity are positively associated with efficiency, while solvency risk is negatively associated with efficiency. We also find that banks with a higher return on equity and a higher level of financial intermediation are more efficient. An increase in the net interest margin leads to a decrease in efficiency, signaling a higher credit risk. The effects of the financial crisis on commercial banks in Romania were observable in 2008, when the cost efficiency and productivity decreased. Empirical results suggest that the contribution of the funds to the increase in productivity is the most significant, while that of labor and capital productivity is lower.

Suggested Citation

  • Mihai Nitoi & Cristi Spulbar, 2016. "The Relationship between Bank Efficiency and Risk and Productivity Patterns in the Romanian Banking System," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 39-53, March.
  • Handle: RePEc:rjr:romjef:v::y:2016:i:1:p:39-53
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    References listed on IDEAS

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    Cited by:

    1. Melchisedek Joslem Ngambou Djatche, 2018. "Re-Exploring the Nexus between Monetary Policy and Banks' Risk-Taking," GREDEG Working Papers 2018-12, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.

    More about this item

    Keywords

    bank efficiency; risk-taking; productivity; performance; DEA;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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