Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis

Abstract

Banking sectors in transition economies have experienced major transformations throughout the 1990s. While some countries have been successful in eliminating underlying distortions and restructuring their financial sectors, in some cases financial sectors remain underdeveloped and the rates of financial intermediation continue to be low. We estimate indicators of commercial bank efficiency by applying a non-parametric estimation technique, data envelopment analysis (DEA), to bank-level data from a wide range of transition countries. In addition to stressing the importance of some bank-specific variables, the censored Tobit analysis suggests that: (1) foreign ownership with controlling power and enterprise restructuring enhance commercial bank efficiency; (2) the effects of prudential tightening on the efficiency of banks vary across different prudential norms; and (3) consolidation is likely to improve efficiency of banking operations. Overall, the results confirm the usefulness of DEA for transition-related applications and shed some light on the question of the optimal architecture of a banking system. Comparative Economic Studies (2006) 48, 497–522. doi:10.1057/palgrave.ces.8100129

Empirical Evidence Regarding the Effects of European Integration on Banks Efficiency

“…This approach is in line with the existing academic literature on this subject (e.g. Berg et al, 1993;Pastor et al, 1997;Casu and Molyneux, 2000;Grigorian andManole, 2002 or Stavárek, 2006). In table 4 we have presented the descriptive statistics for the efficiency scores obtained in the case of the CRS and VRS models, respectively.…”

“…Hasan and Hunter, 1996;Mahajan et al, 1996;DeYoung and Nolle, 1996;Chang et al, 1998;Peek et al, 1999). Still, this view is not universally shared, as there is a series of studies that conclude that especially in the case of emerging economies, the foreign owned banks tend to be more efficient than the domestic ones (see Grigorian and Manole, 2002;Hasan and Marton, 2003;Havrylchyk, 2005;Dardac et Boitan, 2008;Toçi, 2009).…”

“…: Dietsch and LozanoVivas, 2000; Chaffai et al, 2001;LozanoVivas et al, 2001;Sathye, 2002;Grigorian and Manole, 2002;Lozano-Vivas et al, 2002).…”

The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence

“…Dietsch and Lozano-Vivas, 2000). Similarly, Grigorian and Manole (2002), in examining bank efficiency differences for the transition countries of Eastern Europe and former Soviet Union, account for the influence of regulatory measures such as capital adequacy ratio, maximum exposure to single borrower and limits on foreign exchange open positions. Furthermore, a few recent studies, also focussing on transition countries, have used the European Bank for Reconstruction and Development (EBRD) index of banking sector reform among the environmental factors affecting bank efficiency (e.g.…”

Application of Window Malmquist Index for Examination of Efficiency Change of Czech Commercial Banks

“…Some empirical studies, e.g. Grigorian and Manole (2006), Yildirim and Philippatos (2007), Bems and Sorsa (2008), Matoušek (2008), Mamatzakis et al (2008) or Baruník and Soták (2010) examined banking efficiency in several European countries and the Czech banking sector was included in the panel data. Stavárek and Polouček (2004) estimated efficiency and profitability in selected banking sectors, including the Czech Republic, and found that the Czech banking sector showed itself to be the most aligned banking industry among transition countries.…”