Domestic Private Banks Research Articles

How Can Bank Reforms Assuage Socioeconomic Ordeals in Emerging Economies?: Lessons for Egypt from the Turkish Experience

This research utilises a three-stage Stochastic Frontier Analysis/Data Envelope Analysis to investigate the relationship between post-crisis banking reforms, bank efficiency and macroeconomic performance from 2000 till 2010. The study draws lessons for Egypt from the Turkish bank reforms which successfully addressed the popular economic aspirations of growth, employment and stable prices. Whilst Turkey ensured that economic and banking reforms trickle down to all income groups, soaring food prices and high youth unemployment exasperated living conditions in Egypt, which helped trigger the Revolution of January 2011. The contribution of this study is to measure bank efficiency in accomplishing popular macroeconomic aims, instead of fulfilling the bank-centric goals of enhancing bank profitability and cost efficiency. The results reveal that the average-sized banks and domestic private banks display highest efficiency. Public debt, inflation and concentrated markets have unfavourable influences on bank efficiency.

Does business networking boost firms’ external financing opportunities? Evidence from Central and Eastern Europe

This article argues that networked firms are likely to have an advantage in securing bank finance in countries with weak legal and judicial institutions since it helps banks and other financial institutions to minimize the underlying agency costs of lending. An analysis of recent Business Environment and Enterprise Performance Survey (BEEPS) data from 15 Central and Eastern European (CEE) countries lends some support to this hypothesis. Even after controlling for other factors, firms affiliated to Business Associations (BA) are more likely to secure bank finance. Further, the importance of business networking is particularly evident among firms who borrow from private domestic banks, as these new banks attempt to minimize costs of adverse selection. There is also some confirmation that the significance of networking disappears with improvement in institutional quality.

The influence of bank ownership on credit supply: Evidence from the recent financial crisis

This study examines how bank ownership influenced the credit supply during the recent financial crisis in Russia, where the banking sector consists of a mix of state-controlled banks, foreign-owned banks, and domestic private banks. To estimate credit supply changes, we apply an original approach based on stochastic frontier analysis. We use quarterly data for Russian banks covering the period from the beginning of 2007 to the end of 2009. Our findings suggest that bank ownership affected credit supply during the financial crisis and that the crisis led to an overall decrease in the credit supply. Relative to domestic private banks foreign-owned banks reduced their credit supply more and state-controlled banks less. This supports the hypothesis that foreign banks have a “lack of loyalty” to domestic actors during a crisis, as well as the view that an objective function of state-controlled banks leads them to support the economy during economic downturns.

Bank Ownership and Performance in the Middle East and North Africa Region

Although both domestic and foreign private banks have gained ground in Middle East and North Africa (MENA) in recent years, state banks continue to play an important role in many countries. Using a MENA bank-level panel dataset for the period 2001–2008, the article contributes to the empirical literature on bank ownership and performance by documenting recent ownership trends and assessing the relations between bank ownership and performance in MENA while accounting for key bank characteristics such as size and balance sheet composition. The article is the first to analyze headline performance indicators as well as their key drivers and finds that state banks exhibit significantly weaker performance, despite their larger size and potential scale economies. This result is mainly driven by larger holdings of government securities, higher costs due to larger staffing, and larger loan-loss provisions reflecting weaker asset quality. These results seem to reflect both operational inefficiencies and policy mandates. Taken together, the results do not reject the development role of state banks, but show that their policy interventions come at a cost. As such, the article argues that there is scope to reduce the share of state banks in some MENA countries and to clarify the mandates, improve the governance, and strengthen the operational efficiency of most state banks in the region.

The Influence of Bank Ownership on Credit Supply: Evidence from the Recent Financial Crisis

This study examines how bank ownership influenced the credit supply during the recent financial crisis in Russia, where the banking sector consists of a mix of state-controlled banks, foreign-owned banks, and domestic private banks. To estimate credit supply changes, we employ an exhaustive dataset for Russian banks that covers the crisis period and apply an original approach based on stochastic frontier analysis. Our findings suggest bank ownership affected credit supply during the financial crisis and that the crisis led to an overall decrease in the credit supply. Relative to domestic private banks foreign-owned banks reduced their credit supply more and state-controlled banks less. This supports the hypothesis that foreign banks have a 'lack of loyalty' to domestic actors during a crisis, as well as the view that an objective function of state-controlled banks leads them to support the economy during economic downturns.

A comparison of financial performance of commercial banks: A case study of Nepal

The objective of this study was to compare the financial performance of different ownership structured commercial banks in Nepal based on their financial characteristics and identify the determinants of performance exposed by the financial ratios, which were based on CAMEL Model. Eighteen commercial banks for the period 2005 to 2010 were financially analyzed. In addition, econometric model (multivariate regression analysis) by formulating two regression models was used to estimate the impact of capital adequacy ratio, non-performing loan ratio, interest expenses to total loan, net interest margin ratio and credit to deposit ratio on the financial profitability namely return on assets and return on equity of these banks. The results show that public sector banks are significantly less efficient than their counterpart are; however domestic private banks are equally efficient to foreign-owned (joint-venture) banks. Furthermore, the estimation results reveal that return on assets was significantly influenced by capital adequacy ratio, interest expenses to total loan and net interest margin, while capital adequacy ratio had considerable effect on return on equity. Key words: Financial performance, commercial banks, financial ratios analysis, Nepal.

Income diversification and risk: Does ownership matter? An empirical examination of Indian banks

We examine the impact of ownership on income diversification and risk for Indian banks over the period 2001–2009. We investigate both the determinants of non-interest income and the impact of diversification on various profitability and insolvency risk measures for public sector, private domestic, and foreign banks. We document that ownership does matter in the pursuit of non-interest income. Relative to private domestic banks, public sector banks earn significantly less fee-income, while foreign banks report higher fee income. Public sector banks with higher levels of governmental ownership are significantly less likely to pursue non-interest income sources. Fee-based income significantly reduces risk, measured by profitability variables, for public sector banks. Default risk is also reduced for these banks. From a regulatory perspective, it appears that diversification benefits India’s public sector banks. Our research has implications for the changes in the risk profile for banks in emerging banking markets pursuing non-interest revenue sources.

Russian Banking: The Impact of Ownership on Efficiency and Performance

This paper analyses the development of the Russian banking sector over the period 2001-2007 to assess the impact of ownership on the operations of commercial banks. The stochastic frontier approach is employed for a sample of the 50 largest Russian banks to determine cost efficiency differences between foreign-owned, domestic private and state-owned banks. We find that cost efficiency of the Russian banking market decreased over the observed period if technical change is taken into account. The estimation results further suggest that foreign banks are more efficient than state-owned banks, and state-owned banks achieve higher efficiency levels than private domestic banks. These results are consistent with the development of the market share of private domestic banks after the crisis. Finally the lower efficiency of the private segment of the Russian banking sector seems to be due to the higher interest rates, which private banks have to pay for their deposits.

Bank efficiency in South-Eastern Europe

This study examines the cost and profit efficiency of banking sectors in six transition countries of South-Eastern Europe over the period 1998–2008. Using a stochastic frontier approach, our analysis reveals that the average cost efficiency of South-Eastern European banks is 68.59 percent, and the average profit efficiency is 53.87 percent. Regressions on the determinants of bank efficiency show that foreign banks are characterized by higher profit efficiency but lower cost efficiency, and government-owned banks are associated with lower profit efficiency than domestic private banks. However, the efficiency gap between foreign-, domestic private- and government-owned banks narrows over time. We also find that the market power of a bank has a positive association with both cost and profit efficiency. Institutional development, proxied by progress in banking regulatory reforms, privatization and enterprise corporate governance restructuring, also has a positive impact on bank efficiency.

Foreign bank penetration and the lending channel in emerging economies: Evidence from bank-level panel data

This paper examines the main implications of recently increasing foreign bank penetration on bank lending as a channel of monetary policy transmission in emerging economies. Using a dynamic panel model of loan growth, we investigate the loan granting behavior of 1273 banks in the emerging economies of Asia, Latin America, and Central and Eastern Europe during the period from 1996 to 2003. Applying the pooled OLS, system GMM, and panel VAR estimators, we find consistent evidence that foreign banks are less responsive to monetary shocks in host countries, as they adjust their outstanding loan portfolios and interest rates to a lesser extent than domestic private banks, independent of their liquidity, capitalization, size, efficiency, and credit risk, and although there exists a bank lending channel in the emerging economies, it is declining in strength due to the increased level of foreign bank penetration. We also explore possible driving factors for the different responses of foreign and domestic banks to monetary policy shocks by investigating foreign banks’ different behavior during banking crises and tranquil periods, the effects of mode of entry to host countries, the home-country effects, and the response of foreign banks from OECD countries vs. all foreign countries including non-OECD countries. We suggest the access of foreign banks to funding from parent banks through internal capital markets as the most convincing explanation.

Bank Efficiency in Transition Economies: Recent Evidence from South-Eastern Europe

This study examines the cost and profit efficiency of banking sectors in six transition countries of South-Eastern Europe over the period 1998–2008. Using the stochastic frontier approach, our analysis reveals that the average cost efficiency of SEE banks is 68.59% and the average profit efficiency is 53.87%. The second-stage regressions on the determinants of bank efficiency further show that foreign banks are associated with higher profit efficiency but moderately lower cost efficiency. Government banks are associated with lower profit efficiency. The efficiency gap between foreign banks, domestic private banks and government banks, however, has narrowed over time. We also find that the degree of individual banks’ competitiveness has a positive association with both cost and profit efficiency. Finally, institutional development, proxied by progress in banking reforms, privatization and corporate governance restructuring, also has a positive impact on bank efficiency.

How Does Ownership Affect Bank Performance?-The Case Of Indian Commercial Banks

Financial system reforms in recent decades have significantly reshaped the Indian commercial banking system. Despite substantial changes in the ownership and structure of Indian Banking system, fewer reliable studies have been conducted to empirically investigate the effect of ownership on various performance dimensions. Drawing upon experiences of Indian commercial banks during 2002-2009, this study analyzes how state-owned, nationalized and domestic private banks are behind foreign banks, using data envelopment analysis together with three supplementary measures of performance. The findings suggest that the performance of domestic banks has not yet reached the level of foreign banks in terms of both cost and revenue efficiencies. Surprisingly, domestic private banks are the least efficient in the market. Though foreign banks outperform domestic counterparts in multiple aspects, their contribution for spreading banking services beyond metropolitan cities by establishing new branches is trivial and thus they make the least contribution to countrys financial deepening.

Do banks respond to capital requirements? Evidence from Indonesia

Using dynamic panel data models, and addressing a common inappropriate use of simultaneous equation models in the literature, we examine the effect of capital requirements on banks’ behaviour in Indonesia. We find that banks tend to comply with capital requirements by increasing their capital ratios when the ratios are lower than, or falling towards, the 8% regulatory minimum. However, our results are mostly driven by large private-domestic banks and heavily undercapitalized banks that were closely monitored by the regulator in the aftermath of the 1998 crisis. Therefore, whether in normal circumstances banks in Indonesia comply with capital requirements remains questionable.

The efficacy of the Egyptian bank reform plan in mitigating the impact of the global financial crisis

This study tests the ability of the Egyptian Bank Reform Plan (2004–2009) to enhance bank efficiency and attain the prime national macroeconomic objectives of generating youth employment, stabilizing consumer prices and managing national debt, which were significantly impacted by the global financial crisis (GFC). The Pedroni Fully Modified Ordinary Least Squares (FMOLS) method is employed and the period covered extends from 2003:01 till 2010:03. The results of the study reveal that the bank reform program has helped the economy weather the impact of the global economic meltdown. On the whole, the reformed banking sector showed evident success in helping the Central Bank of Egypt achieve its nominal anchor of price stability, with the highest outcome delivered by foreign banks. State banks are the most efficient in creating jobs and financing national debt. Private domestic banks are fairly functional in job creation and financing foreign debt. While these results attest to the general success of the reform in mitigating the impact of the blow of the GFC, further enhancement of the role of foreign banks is needed to attain the other two macroeconomic goals.

The Influence of Bank Ownership on Credit Supply: Evidence from the Recent Financial Crisis

This study examines how bank ownership influenced the credit supply during the recent financial crisis in Russia, where the banking sector consists of a mix of state-controlled banks, foreign-owned banks, and domestic private banks. To estimate credit supply changes, we employ an exhaustive dataset for Russian banks that covers the crisis period and apply an original approach based on stochastic frontier analysis. Our findings suggest bank ownership affected credit supply during the financial crisis and that the crisis led to an overall decrease in the credit supply. Relative to domestic private banks foreign-owned banks reduced their credit supply more and state-controlled banks less. This supports the hypothesis that foreign banks have a lack of loyalty to domestic actors during a crisis, as well as the view that an objective function of state-controlled banks leads them to support the economy during economic downturns. JEL: D14, G21 Keywords: bank, credit policy, foreign ownership, state ownership, stochastic frontier analysis

Bank Financing for SMEs: Evidence Across Countries and Bank Ownership Types

Using data for 91 large banks from 45 countries, this paper finds that foreign, domestic private, and government-owned banks use different lending technologies and organizational structures for SME financing. The extent, type, and pricing of SME loans, however, is not strongly correlated with lending technologies and organizational structures, suggesting that SME financing need not be based only on “relationship lending”. Consistent with these results, we find few significant differences in the extent, type, and pricing of SME loans across bank types. Instead, we find significant differences across developed and developing countries, driven by differences in the institutional and legal environment.

Vplyv rôznych foriem vlastníctva na efektivitu českých a slovenských bánk: prístup analýzy stochastických hraníc

The paper presents empirical analysis of influence of different ownership forms on efficiency of Czech and Slovak banks using the Stochastic Frontier Analysis. The paper brings new results as it uses set of data which has not been used previously in the literature. On the set of 44 Czech and 21 Slovak banks in the 1996 - 2005 period we show, that the stochastic specification of cost frontier is justified method for the data. Our main findings are that the structural influences are significant for both countries. Foreign-owned banks are bit more cost efficient than domestic private banks, state-owned banks are significantly less cost efficient when compared to domestic private banks. Extent of inefficiency also depends on the specification of the model.

Scale Efficiency in the Banking Sector of Pakistan

The study employs data envelopment analysis to a panel of commercial banks operating in Pakistan for a period 2001 – 2008 in order to measure the technical efficiency of banks. Technical efficiency is then broken down into pure technical and scale components. We divide banks into three categories for analytical purposes: state owned banks, domestic private banks and foreign owned banks. We find foreign owned banks to be the most efficient, followed by state owned banks and domestic private banks are found least efficient. Further it is found that pure technical efficiency contributes more towards technical efficiency and banks are faced with serious scale problems. The scale inefficiency is found to be the main source of overall technical inefficiency. We observe an increasing trend in pure technical efficiency whereas an opposite trend is found in scale efficiency during the sample period.

An empirical investigation of the role of the Egyptian banking sector in attenuating the virulence of financial crises

The aim of this paper is to compare the relative efficacy of Egyptian public, private and foreign banks in alleviating adverse macroeconomic meltdowns inflicted by financial crises by employing the Pedroni Fully Modified Ordinary Least Squares (FMOLS) method. The research contrasts two financial reforms: the liberalization phase of 1991-2003 to the Banking Reform Plan (2004-2009). The results of the study reveal that financial reforms have rendered foreign and domestic private banks more efficient in enhancing credit flow to the real sector, whilst making state-owned banks more successful in mobilizing savings during financial crises.

Are private banks more efficient than public banks?

AbstractWe study whether bank efficiency is related to bank ownership in Russia. We find that foreign banks are more efficient than domestic private banks and, surprisingly, that domestic private banks are not more efficient than domestic public banks. These results are not driven by the choice of production process, the bank’s environment, management’s risk preferences, the bank’s activity mix or size, the econometric approach, or the introduction of deposit insurance. The policy conclusion is that the efficiency of the Russian banking system may benefit more from increased levels of competition and greater access of foreign banks than from bank privatization.