Cost Efficiency in Greek Banking

Abstract

TThis study uses the distribution free approach to investigate cost efficiency in a panel of Greek banks over 1993-1999, a period characterized by major changes in the banking sector brought about by gradual financial deregulation. These reforms were supposed to provide an opportunity to Greek banks to improve their efficiency and to enhance their competitiveness in view of ongoing financial integration in Europe and the introduction of the euro. The results obtained indicate that important cost X-inefficiencies are in place. Some evidence is provided that bank characteristics such as bank size, type of ownership and risk behaviour do play a role in explaining differences in measured inefficiencies. Scale economies are also examined and the findings indicate that the Greek banking industry experiences economies of scale, though they have declined throughout the observed period. This suggests that competitive viability may be an important factor for further consolidation in the Greek banking industry.