Determinants of commercial bank performance in transition - an application of data envelopment analysis

David Grigorian and Vlad Manole

No 2850, Policy Research Working Paper Series from The World Bank

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 quite low. The authors 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. They further extend the analysis by explaining the differences in efficiency between financial institutions and countries by a variety of macroeconomic, prudential, and institutional variables. 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 enhance commercial bank efficiency. 2) The effects of prudential tightening on the efficiency of banks vary across different prudential norms. 3) Consolidation is likely to improve efficiency of banking operations. Overall, the results confirm the usefulness of DEA for transition-related applications and may shed light on the optimal architecture of a banking system.

Keywords: Payment Systems&Infrastructure; Financial Crisis Management&Restructuring; Environmental Economics&Policies; Banks&Banking Reform; Fiscal&Monetary Policy; Economic Theory&Research; Banks&Banking Reform; Financial Crisis Management&Restructuring; Environmental Economics&Policies; Financial Intermediation (search for similar items in EconPapers)
Date: 2002-06-30
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Citations: View citations in EconPapers (128)

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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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