Research Discussion Papers, Bank of Finland
No 5/2011:
Bank efficiency in transition economies: recent evidence from South-Eastern Europe
Yiwei Fang ()
, Iftekhar Hasan ()
and Katherin Marton ()
Abstract: This study examines the cost and profit efficiency of
banking sectors in six transition countries of South-Eastern Europe over
the period 1998–2008. Using the stochastic frontier approach, our analysis
reveals that the average cost efficiency of SEE banks is 68.59% and the
average profit efficiency is 53.87%. The second-stage regressions on the
determinants of bank efficiency further show that foreign banks are
associated with higher profit efficiency but moderately lower cost
efficiency. Government banks are associated with lower profit efficiency.
The efficiency gap between foreign banks, domestic private banks and
government banks, however, has narrowed over time. We also find that the
degree of individual banks’ competitiveness has a positive association with
both cost and profit efficiency. Finally, institutional development,
proxied by progress in banking reforms, privatization and corporate
governance restructuring, also has a positive impact on bank efficiency.
Keywords: transition banking; bank efficiency; foreign ownership; institutional development; (follow links to similar papers)
JEL-Codes: G21; P30; P34; P52; (follow links to similar papers)
43 pages, March 14, 2011
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