Bank performance, efficiency and ownership in transition countries

Abstract

Using data from 1996 to 2000, we investigate the effects of ownership, especially by a strategic foreign owner, on bank efficiency for eleven transition countries in an unbalanced panel consisting of 225 banks and 856 observations. Applying stochastic frontier estimation procedures, we compute profit and cost efficiency taking account of both time and country effects directly. In second-stage regressions, we use the efficiency measures along with return on assets to investigate the influence of ownership type. With respect to the impact of ownership, we conclude that privatization by itself is not sufficient to increase bank efficiency as government-owned banks are not appreciably less efficient than domestic private banks. We find that foreign-owned banks are more cost-efficient than other banks and that they also provide better service, in particular if they have a strategic foreign owner. The remaining government-owned banks are less efficient in providing services, which is consistent with the hypothesis that the better banks were privatized first in transition countries.

What drives investment bank performance? The role of risk, liquidity and fees prior to and during the crisis

“…To control for these differences we employ both time effects and country effects in the estimation of the efficiency as in Bonin et al (2005).…”

“…This ratio is defined as the sum of net commission, fees and net trading income over total assets. The conventional ratio of net income to total assets in the literature (Morgan and Stiroh, 2001;Bonin et al, 2005;Beccalli, 2007;Micco et al, 2007;Lin and Zhang, 2009) is replaced by the ratio of investment banking fees to total assets.…”

Determinants of Bank Performance in Ghana, the Economic Value Added (EVA) Approach

“…Also, a study by Bonin et al of eleven transitional economies shows that foreign-owned banks collect more deposits and make more loans than domestic private banks, and are more efficient in the distribution of financial services in those countries (Bonin, Hasan, & Wachtel, 2005 Haddad (2012) examined the relationship between economic value added (EVA), return on assets (ROA), return on equity (ROE), and capital adequacy ratio. His conclusion was a positive and significant relationship between EVA and stock returns in Jordanian Banks.…”

Financial deregulation and profit efficiency: A nonparametric analysis of Indian banks

“…The evidence indicates that since the start of the 1990s, increasing competition has led to gains in profit efficiency in the USA and Europe but not so in the Japanese banking system. More recently, Bonin et al (2005) examined both cost and profit efficiency for 11 transition countries during 1996 to 2000 based on stochastic frontier approach and conclude that privatization, by itself, is not sufficient to increase bank efficiency as government-owned banks are not appreciably less efficient than domestic private banks.…”