Cost Efficiency of Banking Sector of Bangladesh: Evidence Using the Stochastic Frontier Analysis

2018 ◽  
Author(s):  
Md. Hashibul Hassan ◽  
Mahmudul Hassan
Keyword(s):  
Cost Efficiency ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Frontier Analysis

scholarly journals THE EFFECTS OF COMPETITION ON EFFICIENCY: THE VIETNAMESE BANKING INDUSTRY EXPERIENCE

2017 ◽  
pp. 1-30 ◽  
Author(s):  
THANH PHAM THIEN NGUYEN ◽  
SON HONG NGHIEM
Keyword(s):  
Cost Efficiency ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Global Financial Crisis ◽  
Stochastic Frontier ◽  
Bank Efficiency ◽  
Frontier Analysis ◽  
The Cost ◽  
Efficiency Effects ◽  
Industry Experience

Given considerable changes in the Vietnamese banking environment brought about by significant reforms towards liberalization during the last two decades, this study investigates the evolution of competition and efficiency, compares the competition and efficiency of state-owned banks to joint-stock banks, and then tests the “quiet life” hypothesis in this industry over the period 2000–2014. This study employs the efficiency-adjusted Lerner index (i.e., market power) to capture competition, and the cost efficiency estimated by a Fourier-flexible function stochastic frontier analysis (SFA) to capture bank efficiency. This study firstly finds a slight improvement of competition and cost efficiency in the Vietnamese banking sector over the analysis period. Secondly, there are no significant differences in competition and cost efficiency level between state-owned and joint-stock banks. Thirdly, a positive causality running from competition to cost efficiency is documented, providing evidence of supporting the “quiet life” hypothesis. Finally, positive efficiency effects of the banks’ capital ratio and size are found, while insignificant impacts of the growth of GDP per capita and 2007 global financial crisis were observed. The results are strongly robust to a variety of tests. The findings suggest pro-competition, pro-capitalization and pro-size expansion policies in the Vietnamese banking sector if targeting at improving the cost efficiency of Vietnamese banks.

scholarly journals Using Environmental, Social, Governance (ESG) and Financial Indicators to Measure Bank Cost Efficiency in Asia

2021 ◽  
Vol 13 (20) ◽  
pp. 11139
Author(s):  
Hai-Yen Chang ◽  
Lien-Wen Liang ◽  
Yu-Luan Liu
Keyword(s):  
Cost Efficiency ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Developing Economies ◽  
Stochastic Frontier ◽  
Financial Indicators ◽  
Frontier Analysis ◽  
Asian Economies ◽  
Cost Efficient ◽  
The Impact

Environmental, social, and governance (ESG) practices have been used as non-financial indicators to measure bank performance worldwide in the last decade. The United Nations (UN) has specified 17 Sustainable Development Goals (SDGs) for the implementation of these ESG concepts. However, it remains unclear whether the costs of ESG have exceeded the benefits. The purpose of this study is to examine the impact of ESG on the cost efficiency of developed and developing Asian banks using a two-step approach comprising stochastic frontier analysis (SFA) and stochastic metafrontier analysis (SMF). The data sample from 2015 to 2018 is separated into two groups: 60 Asian developed economies and 85 developing economies. The results show that banks in the developed Asian economies become more cost-efficient through environmentally friendly activities. The banks in the developing Asian economies increase their cost efficiency by socially responsible activities and improved governance. Moreover, banks in the developed Asian economies outperformed those in the developing Asian economies in terms of technology gap ratio (TGR) and metafrontier cost efficiency (MCE). The results of this study benefit not only investors and bank managers but also the entire banking sector and the world economy.

scholarly journals Evaluating Bank Cost Efficiency Using Stochastic Frontier Analysis

2019 ◽  
Vol 11 (3(J)) ◽  
pp. 48-57
Author(s):  
Sanderson Abel ◽  
Alex Bara ◽  
Pierre Le Roux
Keyword(s):  
Interest Rates ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Banking System ◽  
Frontier Analysis ◽  
Doing Business ◽  
The Cost

The study seeks to assess the cost efficiency of the commercial banks in Zimbabwe using the stochastic frontier analysis. The cost efficiency of the Zimbabwean banks is estimated using the trans-log stochastic frontier approach. The Stochastic Frontier Analysis methodology is among the host of methods that has been used to measure banking sector efficiency. The analysis of cost efficiency of commercial banks has important implications for the economy since an efficient banking system has potential to reduce interest rates which can lead to increased investment and growth for the economy. The cost of doing business in Zimbabwe is perceived to be high hence improved bank efficiency has the potential to reduce the cost of doing business. The average cost efficiency scores for the Zimbabwean banks over the study period show that the banking sector in Zimbabwe experiencing 17 percent inefficiency. The efficiency levels have been declining over the years reflecting increased resource wastage in the system. The study recommends that the banking institutions should continue to innovate so as to reduce their inefficiencies.

scholarly journals THE COST EFFICIENCY OF CAMBODIAN COMMERCIAL BANKS: A STOCHASTIC FRONTIER ANALYSIS

2021 ◽  
pp. 1-20
Author(s):  
DAIJU AIBA ◽  
OKUDA HIDENOBU
Keyword(s):  
Empirical Evidence ◽  
Rural Areas ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Frontier Analysis ◽  
Business Operations ◽  
The Cost

The Cambodian banking sector has rapidly expanded in recent decades, although there are concerns about the performance of Cambodian banks and the country’s banking sector. A paucity of empirical evidence to clarify the real issues in the banking sector also makes it difficult to formulate effective policy measures to address any potential problems. This study provides empirical evidence by estimating the cost function and efficiencies of 34 commercial banks over the period from 2012 to 2015. We find that the average cost efficiency scores range from 0.60 when measuring bank outputs as loan and deposit amounts, and 0.77 when measuring bank outputs as interest and non-interest income, suggesting that if they are operated more efficiently, they could cut costs by 40% in fund mobilization and 23% in profit making while keeping the same output level. We also find that the Cambodian banks have experienced an improvement in efficiency scores over the period for both aspects of banking activities. Furthermore, we find that expanding a branch network into rural areas is inefficient for bank management, and holding excessive liquidity is associated with higher efficiency, but diversification in bank business operations is negatively associated with cost efficiency of Cambodian commercial banks.

scholarly journals PANEL STOCHASTIC FRONTIER ANALYSIS OF PROFITABILITY AND EFFICIENCY OF TURKISH BANKING SECTOR IN THE POST CRISIS ERA / TURKIJOS BANKŲ SEKTORIAUS VEIKLOS PELNINGUMO IR EFEKTYVUMO ANALIZĖ POKRIZINIU LAIKOTARPIU

2011 ◽  
Vol 12 (4) ◽  
pp. 629-654 ◽  
Author(s):  
Ahmet Faruk Aysan ◽  
Mustafa Mete Karakaya ◽  
Metin Uyanik
Keyword(s):  
Structural Changes ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Foreign Banks ◽  
Efficiency Gain ◽  
Stochastic Frontier Approach ◽  
Banking Efficiency ◽  
Frontier Analysis ◽  
Efficiency Measures

This paper examines the efficiency and its relation to profitability in Turkish banking sector by employing Panel Stochastic Frontier Approach. In the post crises period, extensive structural changes have taken place and a great number of new developments have occurred, affecting the efficiency of banking sector. This is the first study that employs panel stochastic frontier approach for banking efficiency in Turkey. In this research, both cost and profit efficiency measures are estimated for the panel data consisting of 32 banks between 2002–2007. Results suggest that there is cost efficiency gain and convergence in the efficiency levels of banks. As another interesting result, foreign banks are less efficient and state banks are more efficient. This paper also analyzes the relation between efficiency and profitability and finds no robust relation between them. However, the bank size matters more for profitability. Santrauka Autoriai nagrinėja Turkijos bankų veiklą, t. y. jų pelningumą bei efektyvumą pokriziniu laikotarpiu. Šis laikotarpis buvo pasirinktas todėl, kad atsirado daug įvairių struktūrinių pokyčių, kurie turėjo įtakos bankininkystės sektoriaus efektyvumui. Tyrimui buvo pasirinkti 32 Turkijoje veikiantys bankai (jų veiklos rodikliai prieš ekonominę krizę ir po jos). Rezultatai rodo, kad Turkijoje veikiančių užsienio komercinių bankų veikla yra mažiau efektyvesnė nei valstybinių. Taip pat autoriai analizuoja bankų veiklos efektyvumo ir pelningumo santykį, tačiau, kaip rodo gauti rezultatai, stipraus ryšio tarp jų nėra.

scholarly journals The cost efficiency of Vietnamese banks – the difference between DEA and SFA

2020 ◽  
Vol 22 (2) ◽  
pp. 209-227
Author(s):  
Phong Hoang Nguyen ◽  
Duyen Thi Bich Pham
Keyword(s):  
Cost Efficiency ◽  
Stochastic Frontier Analysis ◽  
Random Noise ◽  
Stochastic Frontier ◽  
Time Consistency ◽  
Efficiency Frontier ◽  
Content Type ◽  
Frontier Analysis ◽  
The Difference ◽  
The Cost

PurposeThe paper aims to enrich previous findings for an emerging banking industry such as Vietnam, reporting the difference between the parametric and nonparametric methods when measuring cost efficiency. The purpose of the study is to assess the consistency in issuing policies to improve the cost efficiency of Vietnamese commercial banks.Design/methodology/approachThe cost efficiency of banks is assessed through the data envelopment analysis (DEA) and the stochastic frontier analysis (SFA). Next, five tests are conducted in succession to analyze the differences in cost efficiency measured by these two methods, including the distribution, the rankings, the identification of the best and worst banks, the time consistency and the determinants of efficiency frontier. The data are collected from the annual financial statements of Vietnamese banks during 2005–2017.FindingsThe results show that the cost efficiency obtained under the SFA models is more consistent than under the DEA models. However, the DEA-based efficiency scores are more similar in ranking order and stability over time. The inconsistency in efficiency characteristics under two different methods reminds policy makers and bank administrators to compare and select the appropriate efficiency frontier measure for each stage and specific economic conditions.Originality/valueThis paper shows the need to control for heterogeneity over banking groups and time as well as for random noise and outliers when measuring the cost efficiency.

scholarly journals Measuring Cost Efficiency of Ukrainian Banks in 2008

2013 ◽  
Vol 15 (4) ◽  
pp. 207-217 ◽  
Author(s):  
Anatoliy Pilyavskyy ◽  
Yuriy Matsiv ◽  
Olga Vovchak
Keyword(s):  
Cost Efficiency ◽  
Stochastic Frontier Analysis ◽  
Functional Form ◽  
Statistical Tests ◽  
Stochastic Frontier ◽  
Frontier Analysis ◽  
Average Value ◽  
Personnel Costs ◽  
Banking Activity ◽  
Size Type

The paper presents the results of a stochastic frontier analysis (SFA) of cost-efficiency of Ukrainian banks. As of lack of data on the personnel costs, we had to set limits to the year of 2008 only. To modeling banking activity, we apply the intermediary approach as one of the most commonly used in literature. Considering the results of statistical tests, we chose translog functional form of cost function and half–normal distribution of random inefficiency term. As a result of the research, we found out that efficiency of Ukrainian banks varies within 0.5224 and 0.9869 with an average value of 0.8734. Having checked a range of hypotheses, we discovered insignificant distinctions among banks by their size, type of owner and location.

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