BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Bank ownership and cost efficiency in Russia, revisited
() and Andrei Vernikov
Abstract: This paper considers the comparative efficiency of public,
private, and foreign banks in Russia, a transition economy with several
unusual features. We perform stochastic frontier analysis (SFA) of Russian
bank-level quarterly data over the period 2005–2013. The method of
computation of comparative cost efficiency is amended to control for the
effect of revaluation of foreign currency items in bank balance sheets.
Public banks are split into core and other state-controlled banks.
Employing the generalized method of moments, we estimate a set of distance
functions that measure the observed differences in SFA scores of banks and
bank clusters (heterogeneity in risk preference and asset structure) to
explain changes in bank efficiency rankings. Our results for comparative
Russian bank efficiency show higher efficiency scores, less volatility, and
narrower spreads between the scores of different bank types than in
previous studies. Foreign banks appear to be the least cost-efficient
market participants, while core state banks on average are nearly as
efficient as private domestic banks. We suggest that foreign banks gain
cost-efficiency when they increase their loans-to-assets ratios above the
sample median level. Core state banks, conversely, lead in terms of cost
efficiency when their loans-to-assets ratio falls below the sample median
level. The presented approach is potentially applicable to analysis of bank
efficiency in other dollarized emerging markets.
Keywords: banks; comparative efficiency; SFA; state-controlled banks; Russia; (follow links to similar papers)
JEL-Codes: G21; P23; P34; P52; (follow links to similar papers)
52 pages, July 27, 2015
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