The anatomy of bank performance during transition
Open Access
- 21 April 2016
- journal article
- Published by Center for Strategic Studies in Business and Finance SSBFNET in International Journal of Finance & Banking Studies (2147-4486)
- Vol. 5 (3), 01-31
- https://doi.org/10.20525/ijfbs.v5i3.295
Abstract
By drawing on Ukrainian experience, this paper analyzes the anatomy of bank efficiency in a transitional economy. Acknowledging the vast disparities in the business technology of different size banks, in this comprehensive study, we innovatively estimate group-specific (distinct) frontiers for small, medium, and large size banks. The results from separate frontiers reveal that Ukrainian banks record 38% technical inefficiency, 26% pure technical inefficiency, and 17% scale inefficiency on average. Apparently, banks in transition waste about the two fifths of their factor inputs during the production of financial services. The cardinal source of sub-performance in transitional banks seems to be managerial inefficiencies. We also found that banks operating in areas with more political influence and more developed infrastructure outperform the banks operating in politically and economically weaker regions. The results also indicate that larger banks, enjoying public trust in a risky business climate, dominate smaller banks in all forms of efficiency. However, such bias for size causes large banks to suffer from decreasing returns to scale and small banks from idle capacity. Consequently, the policies promoting consolidation between small and large banks may alleviate the excess (idle) capacity for large (small) banks in a transitional economy.Keywords
This publication has 34 references indexed in Scilit:
- Bank Efficiency in Transition Economies: Recent Evidence from South-Eastern EuropeSSRN Electronic Journal, 2011
- Determinants of Efficiency and Liquidation in Transitional Economy: Evidence from Ukraine, 2004-2010SSRN Electronic Journal, 2011
- Trade liberalization and industry performance in BangladeshJournal of Policy Modeling, 2010
- Efficiency of the Polish Banking Industry: Foreign versus Domestic BanksSSRN Electronic Journal, 2004
- Efficiency, Ownership and Market Structure, Corporate Control and Governance in the Turkish Banking IndustryJournal of Business Finance & Accounting, 2003
- Efficiency of multinational banks: an empirical investigationApplied Financial Economics, 1998
- Inside the black box: What explains differences in the efficiencies of financial institutions?Journal of Banking & Finance, 1997
- The technical efficiency of large bank productionJournal of Banking & Finance, 1996
- Cost structures in multinational and domestic bankingJournal of Banking & Finance, 1996
- Productive efficiency performance of minority and nonminority-owned banks: A nonparametric approachJournal of Banking & Finance, 1992