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A Meta-frontier Approach for Comparing Bank Efficiency Differences between Indonesia, Malaysia and Thailand

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  • Yi-Cheng Liu
  • Ying-Hsiu Chen

Abstract

The purpose of this paper is to employ the Meta-Frontier Cost Function to compare the bank efficiencies in Indonesia, Malaysia, and Thailand during the period of 2002–2009. We propose two new variables: income on loans and non-performing loans, to identify whether the banks are both cost and profit efficient and to control the quality of loans in contrast with early studies using loans and securities as the output variables. Evidence is found that the Indonesian banks are the most efficient. The empirical results illuminate the governments’ policies and bank management. The declining trend of the efficiency in Indonesia needs to be eliminated. If the Thai banks continue to progress in employing superior technology and increasing cost efficiency they may catch up with the Indonesian banks in regards to efficiency. In the case of Malaysia, great efforts have to be made to improve its efficiency.

Suggested Citation

  • Yi-Cheng Liu & Ying-Hsiu Chen, 2012. "A Meta-frontier Approach for Comparing Bank Efficiency Differences between Indonesia, Malaysia and Thailand," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 2(6), pages 1-10.
    • Handle: RePEc:spt:apfiba:v:2:y:2012:i:6:f:2_6_10
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    1. Laeven,Luc A., 1999. "Risk and efficiency in East Asian banks," Policy Research Working Paper Series 2255, The World Bank.
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    Cited by:

    1. Thanh Pham Thien Nguyen & Son Hong Nghiem & Eduardo Roca & Parmendra Sharma, 2016. "Efficiency, innovation and competition: evidence from Vietnam, China and India," Empirical Economics, Springer, vol. 51(3), pages 1235-1259, November.
    2. Abdul-Majid, Mariani & Falahaty, Manizheh & Jusoh, Mansor, 2017. "Performance of Islamic and conventional banks: A meta-frontier approach," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1327-1335.

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