Cost Efficiency of Domestic and Foreign Banks in Thailand: Evidence from Panel Data

Saovanee Chantapong and Lukas Menkhoff

No 9, Proceedings of the German Development Economics Conference, Kiel 2005 from Verein für Socialpolitik, Research Committee Development Economics

Abstract: The paper estimates and compares cost efficiency of domestic and foreign banks in Thailand by using bank-panel data between 1995 and 2003. It also examines the effect of foreign bank entry on banking efficiency in Thailand since the significant acquisitions by foreign banks after the 1997 financial crisis. The widely used translog functional form specification is statistically tested by pooled regressions. The estimated results suggest that the unit costs of production of domestic and foreign banks are indistinguishable, although the two types of banks focus on different areas of the banking business. The findings suggest that based on bank operating efficiency, if foreign banks represent the best-practice banks in the industry, to a large extent, domestic banks in Thailand have caught up to the best-practice standards throughout 1995-2003, significantly after the 1997 financial crisis . This may be due to greater foreign participation through acquisitions, which increases the competitive pressure in the banking industry, and also to financial restructuring of domestic banks, which increases the cost efficiency of domestic banks, thereby benefiting banking customers.

Keywords: Banks; Financial Policy; Capital and Ownership Structure; Cost Efficiency (search for similar items in EconPapers)
JEL-codes: D24 G21 G32 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-ban, nep-com, nep-eff, nep-fin, nep-fmk and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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