Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis

David Grigorian and Vlad Manole

No 2002/146, IMF Working Papers from International Monetary Fund

Abstract: Banking sectors in transition economies have experienced major transformations throughout the 1990s. While some countries have been successful in eliminating underlying distortions and restructuring their financial sectors, in some cases financial sectors remain underdeveloped and the rates of financial intermediation continue to be low. We estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries. In addition to stressing the importance of some bank-specific variables, the censored Tobit analysis suggests that (1) foreign ownership with controlling power and enterprise restructuring enhances commercial bank efficiency; (2) the effects of prudential tightening on the efficiency of banks vary across different prudential norms; and (3) consolidation is likely to improve the efficiency of banking operations. Overall, the results confirm the usefulness of DEA for transition-related applications and shed some light on the question of the optimal architecture of a banking system.

Keywords: WP; rule of law affect bank-efficiency indicator; bank efficiency; banking sector; EBRD enterprise restructuring index; Banking sector development; economies in transition; intermediation function; productivity indicator; bank performance; branch network; Commercial banks; Foreign banks; Nonbank financial institutions; Financial sector development; Loans; Europe; Baltics (search for similar items in EconPapers)
Pages: 28
Date: 2002-09-01
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Citations: View citations in EconPapers (138)

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Related works:
Journal Article: Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis (2006)
Working Paper: Determinants of commercial bank performance in transition - an application of data envelopment analysis (2002)
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