Measuring Bank Efficiency and Market Power in the Household and Corporate Credit Markets Considering Credit Risks

Zsuzsanna Hosszú () and Bálint Dancsik ()
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Zsuzsanna Hosszú: Magyar Nemzeti Bank (MNB, the central bank of Hungary), Budapest, Hungary
Bálint Dancsik: Magyar Nemzeti Bank (MNB, the central bank of Hungary), Budapest, Hungary

Acta Oeconomica, 2018, vol. 68, issue 2, 175-207

Abstract: The aim of this paper is to estimate the efficiency of Hungarian banks with several models and to calculate the Lerner index for both the household and the corporate credit market. We apply stochastic frontier analysis (SFA) and data envelopment analysis (DEA) models to estimate the efficiency and calculate profit and cost efficiency with and without taking credit losses into consideration. In terms of cost efficiency, banks are nearly homogeneous and improved their efficiency after the crisis. Banks, however, are extremely heterogeneous in terms of profit efficiency. During the crisis, a gradual improvement could be observed across the sector after the initial downturn. Since the operating conditions of the household and the corporate credit markets are different, we estimated the intensity of competition separately for both the markets. While the Lerner index showed strong market power in the household credit market, the corporate credit market was characterised by intense competition. Regarding efficiency, various models often resulted in different conclusions, especially in the case of cost efficiency. Therefore we recommend that the regulatory decision-making process should always consider the results of several models. Moreover, the Lerner indices demonstrate that it might be important to use disaggregated models when modelling the features of credit markets.

Keywords: bank efficiency; frontier analysis; Lerner index; credit markets; credit risks; Hungary (search for similar items in EconPapers)
JEL-codes: D24 D40 G21 L11 (search for similar items in EconPapers)
Date: 2018
Note: We are grateful to Tamás Briglevics and Ádám Reiff for their valuable comments and suggestions.
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Citations: View citations in EconPapers (5)

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