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Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries

  • Steven Fries

    (European Bank of Reconstruction and Development)

  • Anita Taci


    (European Bank of Reconstruction and Development)

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    To understand the transformation of banking in the post-communist transition, this paper examines the cost efficiency of 289 banks in 15 east European countries. The findings showed that banking systems in which foreign-owned banks have a larger share of total assets record lower costs and that the association between a country’s progress in banking reform and cost efficiency is non-linear. Early stages of reform are associated with cost reductions, while costs tend to rise at more advanced stages. Private banks are more efficient than state-owned banks, but there are differences among private banks. Privatised banks with majority foreign ownership are the most efficient and those with domestic ownership are the least.

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    Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 86.

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    Length: 30 pages
    Date of creation: Apr 2004
    Date of revision:
    Handle: RePEc:ebd:wpaper:86
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