Drivers of Productivity in the Spanish Banking Sector: Recent Evidence

Abstract

We analyse the drivers of total factor productivity of Spanish banks from early 2000, including the last financial crisis and the post-crisis period. This allows us to study changes in productivity following a major restructuring process in the banking sector such as the one experienced in Spain. Overall, we find that following a period of continued growth, productivity declined after the height of the crisis, though large banks were less affected. We also find that risk, capital levels, competition and input prices were important drivers of the differences in productivity change between banks. Finally, our results suggest that, by the end of our sample period, there was still some room for potential improvements in productivity via exploiting scale economies and enhancing cost efficiency. These opportunities appear to be generally greater for the smaller banks in our sample.