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

  • Nikolay Nenovsky
  • Petar Chobanov
  • Gergana Mihaylova

    (Agency for Economic Analysis and Forecasting)

  • Darina Koleva

    (Agency for Economic Analysis and Forecasting)

The 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 banking sector characteristics, the study covers only the period of 1999-2006 because of the lack of consistent available data prior 1999. During the analysed period the impact on the bank efficiency of the following factors is studied: change in property, penetration of the foreign commercial banks on the local banking market, competition, structure of bank assets and liabilities, central bank policy in respect to credit activity, etc. The limits of the 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 intermediation and operating approaches were applied to separate groups and sub-groups. The results show that: firstly, the foreign banks perform better than domestic and state-owned banks because of the technological and managerial improvements; and secondly, the large banks are more efficient than the small banks due to decreasing operating costs and scale economies.

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Paper provided by Agency for Economic Analysis and Forecasting in its series Working paper series with number 12008en.

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Length: 33 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:eaf:wpaper:12008en
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  1. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
  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. David A Grigorian & Vlad Manole, 2006. "Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis," Comparative Economic Studies, Palgrave Macmillan, vol. 48(3), pages 497-522, September.
  4. 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.
  5. 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.
  6. Athanasoglou, Panayiotis & Delis, Manthos & Staikouras, Christos, 2006. "Determinants Of Bank Profitability In The South Eastern European Region," MPRA Paper 10274, University Library of Munich, Germany.
  7. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
  8. 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.
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