Cost and Profit Efficiencies of Australian Banks and the Impact of the Global Financial Crisis

Abstract

This article analyses the cost and profit efficiencies of Australian banks over the period 1997-2009, including the impact of the recent global financial crisis. Using a stochastic frontier analysis, we find that Australian banks were relatively both cost- and profit-efficient before the crisis. The crisis subsequently had an adverse effect on the profit efficiency of Australian banks, but had no significant impact on their cost efficiency. We also find that the major banks were more profit-efficient, but less cost-efficient, than their regional competitors. The article further investigates the factors determining differences in efficiency between Australian banks.