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Bank Efficiency Differences Across Central and Eastern Europe

Author

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  • Barnabás Székely

    (Magyar Nemzeti Bank (Central Bank of Hungary))

Abstract

The study evaluates bank efficiency in the EU member states of Central and Eastern Europe (CEE) using stochastic frontier analysis (SFA). Relying on a comprehensive dataset covering the post-crisis period from 2010 to 2016, country-specific average profit and cost efficiencies are calculated. Compared with similar pre-crisis studies, the results highlight the reshuffling effects of the financial crisis. Hungary, for instance, that was consistently found to have a comparatively efficient banking system, now performs well below average. Contrasting the results of traditional performance indicators with SFA supports the mechanism put forward by the Quiet Life Hypothesis. The positive relationship of market share and return on assets (or equity) indicates that higher market power enables banks to realize higher profits. SFA, on the other hand, suggests a negative association implying that banks do not tend to fully exploit this potential.

Suggested Citation

  • Barnabás Székely, 2018. "Bank Efficiency Differences Across Central and Eastern Europe," MNB Working Papers 2018/3, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:wpaper:2018/3
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bank Efficiency; Stochastic Frontier Analysis; Central and Eastern Europe;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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