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

September 1, 2002

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David A. Grigorian, and Vlad Manole. Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis, (USA: International Monetary Fund, 2002) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Banking, Commercial banks, Financial institutions, Financial markets, Financial sector development, Foreign banks, Loans, Nonbank financial institutions

Keywords: Baltics, Bank efficiency, Bank performance, Banking sector, Banking sector development, Branch network, Commercial banks, EBRD enterprise restructuring index, Economies in transition, Europe, Financial sector development, Foreign banks, Intermediation function, Loans, Nonbank financial institutions, Productivity indicator, Rule of law affect bank-efficiency indicator, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/146
Stock No:

WPIEA1462002
ISBN:

9781451856651
ISSN:

1018-5941

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