The Egyptian Banking Sector: Assessing Efficiency Using a Stochastic Frontier Cost Function
This paper analyzes the cost efficiency of Egyptian banks in a period that witnessed major regulatory and structural changes. Using the full set of Egyptian commercial banks over the period 2000 to 2006, a multi-output cost function is specified and estimated by a stochastic frontier model. The results show that the banks suffer significantly from internal X-inefficiency, where the average distance to the frontier is about 12%. Increasing economies of scale are found to exist up to a bank size of about EGP 30bn ($ 5bn), implying that all but the four largest banks in Egypt could reduce their average costs by growth. Surprisingly, Egyptian banks did not benefit from technological change, but instead faced a negative dynamics of the cost frontier. Second-stage regressions, conducted to explain the different efficiency levels of the institutions, revealed a positive impact of size, growth, and merger activities on inefficiency. Summarizing, the statement “the bigger, the better” describes pretty well the current status of the Egyptian banking industry, encouraging further growth and consolidation by mergers and acquisitions.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Nov 2012|
|Contact details of provider:|| Web page: http://mgt.guc.edu.eg/economics/RePEc/guc/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vander Vennet, Rudi, 2002. "Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 254-282, February.
- Joseph P. Hughes & Loretta J. Mester, 2008.
"Efficiency in banking: theory, practice, and evidence,"
08-1, Federal Reserve Bank of Philadelphia.
- Joseph P. Hughes & Loretta J. Mester, 2008. "Efficiency in Banking: Theory, Practice, and Evidence," Departmental Working Papers 200801, Rutgers University, Department of Economics.
- Berger, Allen N. & Mester, Loretta J., 1997. "Inside the black box: What explains differences in the efficiencies of financial institutions?," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 895-947, July.
- Allen N. Berger & Loretta J. Mester, 1997. "Inside the black box: what explains differences in the efficiencies of financial institutions?," Finance and Economics Discussion Series 1997-10, Board of Governors of the Federal Reserve System (U.S.).
- Allen N. Berger & Loretta J. Mester, 1997. "Inside the black box: what explains differences in the efficiencies of financial institutions?," Working Papers 97-1, Federal Reserve Bank of Philadelphia.
- Allen N. Berger & Loretta J. Mester, 1997. "Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?," Center for Financial Institutions Working Papers 97-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Ihsan Isik, 2002. "Cost and Profit Efficiency of the Turkish Banking Industry: An Empirical Investigation," The Financial Review, Eastern Finance Association, vol. 37(2), pages 257-279, 05.
- Greene, William H., 1990. "A Gamma-distributed stochastic frontier model," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 141-163.
- Altunbas, Y. & Chakravarty, S. P., 2001. "Frontier cost functions and bank efficiency," Economics Letters, Elsevier, vol. 72(2), pages 233-240, August.
- Lawrence, Colin, 1989. "Banking Costs, Generalized Functional Forms, and Estimation of Economies of Scale and Scope," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 368-379, August.
- Berger, Allen N, 2003. " The Economic Effects of Technological Progress: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 141-176, April.
- Allen N. Berger, 2002. "The economic effects of technological progress: evidence from the banking industry," Finance and Economics Discussion Series 2002-50, Board of Governors of the Federal Reserve System (U.S.).
- Lang, Gunter & Welzel, Peter, 1999. "Mergers among German Cooperative Banks: A Panel-Based Stochastic Frontier Analysis," Small Business Economics, Springer, vol. 13(4), pages 273-286, December.
- Günter Lang, Peter Welzel, 1999. "Mergers Among German Cooperative Banks. A Panel-based Stochastic Frontier Analysis," Working Paper Series B 1999-03, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät.
- Noulas, Athanasios G & Ray, Subhash C & Miller, Stephen M, 1990. "Returns to Scale and Input Substitution for Large U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 94-108, February.
- Lang, Gunter & Welzel, Peter, 1996. "Efficiency and technical progress in banking Empirical results for a panel of German cooperative banks," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1003-1023, July.
- Abu-Bader, Suleiman & Abu-Qarn, Aamer S., 2008. "Financial development and economic growth: The Egyptian experience," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 887-898.
- Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275, October.
- Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
- Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-1266, September.
- Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October.
- Cavallo, Laura & Rossi, Stefania P. S., 2001. "Scale and scope economies in the European banking systems," Journal of Multinational Financial Management, Elsevier, vol. 11(4-5), pages 515-531, December. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:guc:wpaper:33. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lobna Sameer)
If references are entirely missing, you can add them using this form.