Technical Efficiency of Banks in Central and Eastern Europe

Eva Horvatova

doi:10.3390/ijfs6030066

Abstract

The purpose of this article is to examine what affected the technical efficiency of banks in Central and Eastern European countries during the financial crisis. Firstly, this article analyzes the technical efficiency of banks in the selected countries in Central and Eastern Europe during the period 2006–2013. In this article, the technical efficiency of Central and Eastern European banks is explored in respect to the size of the banks (large or small) and their belonging in a specific group of countries. The results of the analysis show a strong association between the numbers of efficient banks and belonging of banks in the group of V4 countries (Visegrad countries are the Czech Republic, Hungary, Poland, and Slovakia). The banks in Balkan countries have a negative association with the number of efficient banks in the group; the banks in this group of countries have the highest average efficiency (when the output was net interest margin). There is a weak association between the number of efficient banks and their belonging in the group of Baltic countries. The bank efficiency and the size of the bank’s assets are also weakly associated. Secondly, the results of panel regression models for the specific groups of countries (V4, Baltic, and Balkan countries), as well as for the whole group of Central and Eastern European countries show that the customer deposits had a positive impact on the technical efficiency of banks during the financial crisis.

Highlights

The banking sectors in Central and Eastern European countries have undergone a complex process of restructuring and subsequent privatization
The paper is important in two respects: (1) It investigates what affected the technical efficiency of Eastern European banks during the financial crisis in respect to the size of banks and their belonging in a specific group of countries; and (2) considering that the largest banks of Central and Eastern Europe are parts of Western European banks (Raiffeisen, Erste Bank, Intesa Sanpaolo, UniCredit), the stability of Central and Eastern European banks may affect the banks in Western Europe
The results of the association analysis show that there is a strong association between the number of efficient banks and belonging of efficient banks to the group of V4 countries

Summary

Introduction

The banking sectors in Central and Eastern European countries have undergone a complex process of restructuring and subsequent privatization. This intensive reform process used similar instruments and similar speed of reform adoptions, but the impact of these changes among Central and Eastern European (CEE) countries is different. The purpose of this article is to examine what affected the technical efficiency of Eastern European banks during the financial crisis. The technical efficiency of Central and Eastern European banks is explored in respect to the size of the banks (large or small) and their belonging in a specific group of countries

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Results

Conclusion