Cost Efficiency of Banks in Croatia

Huljak Ivan ()
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Huljak Ivan: Croatian National Bank, Zagreb, Croatia

Croatian Review of Economic, Business and Social Statistics, 2015, vol. 1, issue 1-2, 12-26

Abstract: Foreign and larger banks in Croatia are generally considered to be more cost efficient compared with domestic and smaller banks. However, those views are often based on data from financial statements that can be misleading due to simultaneous consolidation process on the market and the existence of economies of scale. To contribute to the Croatian banking efficiency literature, we construct a panel of individual bank data for 1994-2014 period and conduct a frontier analysis to calculate bank specific X-efficiency. Our results suggest that efficiency scores depend on the cost definition as domestic and smaller banks are more efficient in managing administrative costs compared with foreign and larger banks but equally efficient in managing total costs. Results indicate that average bank relative efficiency increased on two occasions: one in the late 90s in the period of banking crisis and subsequent “market cleansing” and to a lesser extent in the period marked with financial crisis. Although the differences between bank cost efficiencies seem small, we conclude that the area is worth further research as significant gains in bank earnings could be achieved by increasing efficiency.

Keywords: Croatia; banks; cost efficiency (search for similar items in EconPapers)
JEL-codes: D22 G21 G34 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:crebss:v:1:y:2015:i:1-2:p:12-26:n:2

DOI: 10.1515/crebss-2016-0002

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