Efficiency of banks in Croatia

Dean Uèkar () and Danijel Petroviæ ()
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Dean Uèkar: Juraj Dobrila University of Pula, Faculty of Economics and Tourism “Dr. Mijo Mirkoviæ”, 52100 Pula, Croatia
Danijel Petroviæ: Juraj Dobrila University of Pula, Faculty of Economics and Tourism “Dr. Mijo Mirkoviæ”, 52100 Pula, Croatia

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2021, vol. 39, issue 2, 349-379

Abstract: Croatian banking sector amounts to the majority of its financial sector. Therefore, it is necessary that Croatian banks operate efficiently. In the past two decades, the Croatian banking sector went through a consolidation process that steadily decreased the number of banks and allocated the majority of assets and market share to a few large banks. A simple definition of efficiency is cost minimization and profit maximization. Therefore, a bank is efficient when it strives to minimize its costs while maximizing its profits. This paper aims to estimate efficiency of Croatian banks using the DEA methodology within the period 2014-2019. In addition, the performance indicators (return on assets, return on equity) calculated for the same period aim at comparing performance indicators to efficiency results. The results indicate that larger banks are generally more efficient in operating on the frontier. And, in comparison to performance indicators, they achieve higher levels of returns on assets and equity. Furthermore, some small banks tend to be efficient, while the benefits of being a medium bank are inconclusive since the results reveal that some medium banks have below average efficiency. Overall, average efficiency improved in the observed period, which means that the consolidation process of financial institutions creates large and efficient banks.

Keywords: banking efficiency; Data Envelopment Analysis; financial consolidation; Croatian banking sectors (search for similar items in EconPapers)
JEL-codes: C61 C67 G21 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:rfe:zbefri:v:39:y:2021:i:2:p:349-379

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