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

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  • Nikolay Nenovsky

    ()

  • Petar Chobanov

    ()

  • Gergana Mihaylova

    ()

  • Darina Koleva

    ()

Abstract

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

Suggested Citation

  • Nikolay Nenovsky & Petar Chobanov & Gergana Mihaylova & Darina Koleva, 2008. "Efficiency of the Bulgarian Banking System: Traditional Approach and Data Envelopment Analysis," ICER Working Papers 22-2008, ICER - International Centre for Economic Research.
  • Handle: RePEc:icr:wpicer:22-2008
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    References listed on IDEAS

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    1. Malgorzata Pawlowska, 2005. "Competition, Concentration, Efficiency, and their Relationship in the Polish Banking Sector," NBP Working Papers 32, Narodowy Bank Polski, Economic Research Department.
    2. M. Berlemann & K. Hristov & Nikolay Nenovsky, 2002. "Lending of last resort, moral hazard and twin crises. Lessons from the Bulgarian financial crises 1996/1997," Post-Print halshs-00260052, HAL.
    3. 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.
    4. T. Nenova & Nikolay Nenovsky & M. Tomova, 2003. "The Efficiency of banking Systems in CEE. Inequality and Convergence to the EU," Post-Print halshs-00259813, HAL.
    5. 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.
    6. David A Grigorian & Vlad Manole, 2006. "Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 48(3), pages 497-522, September.
    7. Havrylchyk, Olena & Jurzyk, Emilia, 2006. "Profitability of foreign banks in Central and Eastern Europe : does the entry model matter?," BOFIT Discussion Papers 5/2006, Bank of Finland, Institute for Economies in Transition.
    8. 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.
    9. 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.
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    Cited by:

    1. Nikolay Nenovsky & Martin Ivanov & Gergana Mihaylova, 2008. "The Evolution of Bulgarian Banks' Efficiency During the Twenties: A Dea Approach," Working Papers 82, Bank of Greece.
    2. Clements Adeyinka Akinsoyinu, 2015. "Efficiency Evaluation of European Financial Cooperative Sector. A Data Envelopment Analysis Approach," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(4), pages 11-21, October.
    3. Kiril Tochkov & Nikolay Nenovsk, 2010. "Institutional Reforms, EU Accession, and Bank Efficiency: Evidence from Bulgaria," Working Papers 201005, Texas Christian University, Department of Economics.
    4. Evgeni Genchev, 2012. "Effects of market share on the bank’s profitability," Review of Applied Socio-Economic Research, Pro Global Science Association, vol. 3(1), pages 87-94, July.
    5. Kiril Tochkov & Nikolay Nenovsky, 2009. "Efficiency of commercial banks in Bulgaria in the wake of EU accession," ICER Working Papers 21-2009, ICER - International Centre for Economic Research.
    6. Katerina Voycheska, 2011. "Empirical Research on the Banking Efficiency in R. Macedonia," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 73-93.

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    Keywords

    DEA; bank efficiency; Bulgarian banking system; foreign banks;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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