Bank Ownership And Cost Efficiency In Russia, Revisited

Mikhail Mamonov () and Andrei Vernikov ()
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Mikhail Mamonov: National Research University Higher School of Economics

HSE Working papers from National Research University Higher School of Economics

Abstract: This paper adds to the literature on banking in transition with regard to the comparative efficiency of public, private and foreign banks. We perform stochastic frontier analysis (SFA) of Russian bank-level quarterly data from 2005 to 2013. The method of computation of comparative cost efficiency is amended to control for the effect of the revaluations of foreign currency items in bank balance sheets. All public banks are split into the core and other state-controlled banks. We employ the generalized method of moments to estimate a set of distance functions measuring the observed differences in the SFA scores of banks and bank clusters, depending on the heterogeneity in risk preference and asset structure. These distance functions explain the changes in bank efficiency rankings. Our results on comparative bank efficiency are qualitatively different from those in mainstream papers. The efficiency scores of Russian banks are higher and less volatile, and spreads between the scores of different bank types are narrower than hitherto believed. Foreign banks appear as the least cost-efficient type of market participants, while the core state banks are, on average, nearly as efficient as domestic private banks. We suggest that foreign banks are capable of being more cost efficient than others if they increase loans-to-assets ratios above the sample median level. Core state banks, conversely, lead in terms of cost efficiency if their loans-to-assets ratio falls below the sample median level. Our approach is potentially applicable to the analysis of bank efficiency in other dollarized emerging markets

Keywords: banks; comparative efficiency; SFA; state-controlled banks; Russia (search for similar items in EconPapers)
JEL-codes: G21 P23 P34 P52 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2015
New Economics Papers: this item is included in nep-ban, nep-cis, nep-eff and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in WP BRP Series: Financial Economics / FE, June 2015, pages - 46

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Working Paper: Bank ownership and cost efficiency in Russia, revisited (2015)
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