Efficiency Of Banking System Research Articles

The Effects of ICT on the Growth of Nigerian Banking Industry: (A Case Study of Five Quoted Banks in Nigeria)

Information communication technology has become the engine block of every banking institution worldwide and Nigerian banking institutions are not exempted. In an attempt to meet up with the global challenges, commercial banks are not left out in the bid to improving banking system efficiency. For the purpose of this research, the historical and survey research methods were adopted. Data were collected from both primary and secondary sources. Hypothesis formulate were tested using chi-square and regression analysis. The study finds that the traditional banking system is not in line with global trends and that the application and usage of information technology in the banking system is necessary for efficient service delivery. It also reveals the use of electronic banking as significantly revolutionizing service delivery to improve customer satisfaction through the various electronic fund transfer and payment services such as the automated teller machine (ATMs), and other cards services, internet banking, mobile banking and all sorts of banks and financial institution services to speed up service delivery for and to stimulate efficiency in the entire financial system. The study recommends that banks and other financial institutions should embark upon training programme for all operational staff of all banks and public awareness should be instituted to improve the knowledge of information communication technology and for performance adequacy to support the much needed efficiency and operational effectiveness and also to control the regular system failure that customers face. The study recommends how banks and government can streamline the problem of infrastructure in the economy. Banks should come together and form partnerships in the sharing and use of technological equipment to increase their efficiency and cost effectiveness.

Does a Strong Governance Mechanism Improve Efficiency in Banking System?

Does a Strong Governance Mechanism Improve Efficiency in Banking System?

Ranking influencing factors on relative efficiency of banking industry

Article history: Received January 30, 2013 Received in revised format 20 May 2013 Accepted May 28 2013 Available online May 31 2013 Measuring the relative efficiency of banking industry has been one of the most interesting areas of research for the past few years. There are literally various techniques for measuring the relative performance of similar units such as banks including data envelopment analysis and stochastic frontier analysis. This paper presents an empirical investigation to measure the relative performance of some Iranian banks located in province of Alborz, Iran for two consecutive fiscal years of 2009 and 2010. The proposed study implements stochastic frontier analysis to measure the performance of these banks based on two set of criteria. In the first model, total loans devoted are considered as output and employees, total customers’ investment, total fixed assets as well as no-interest deposits are considered as inputs of the model. For the second model, special banks’ characteristics such as total economic value of branch, the ratio of fixed assets to total assets, educational backgrounds of employees as well as the level of automation in the system are considered as input parameters of the systems. The results indicate that most bank perform relatively well according to their efficiencies. © 2013 Growing Science Ltd. All rights reserved.

Measuring cost efficiency in presence of heteroskedasticity: The case of the banking industry in Taiwan

We measure cost efficiency of commercial banks in Taiwan using annual data for the 1996–2011 period. Following Caudill et al. (1995), and Caudill and Ford (1993), we develop a generalized dynamic model that accounts for heteroskedasticity in the cost inefficiency component of the error term in the stochastic frontier (SF) model and adopt a single-step approach (e.g., Battese and Coelli, 1995; Wang and Schmidt, 2002) to circumvent the problems associated with the two-step estimation procedure used by prior studies. We show that the results based on the heteroskedastic stochastic frontier (HSF) model combined with the single-step estimation approach sharply contrast with that of the traditional ‘two-step’ approach. These are important findings because they point to the limitations of previous studies on cost efficiency that use a two-step estimation approach. Our findings suggest that asset size, loan quality, and bank equity-to-asset ratio have significant negative impact on cost efficiency of banks. Government-owned banks in Taiwan are more likely to be cost efficient than privately owned banks. Macroeconomic environmental factors such as money supply and foreign exchange reserve ratio are likely to influence the cost efficiency of banking industry in Taiwan.

DOES GLOBALIZATION INCREASE BANK EFFICIENCY AS MEASURED BY NET INTEREST MARGIN?

This study examines how the level of globalization as well as the incremental globalization of each country is associated with bank efficiency, which is measured by banks’ net interest margin (NIM). Using a panel of 35,501 observations in 141 countries over the period of 1987–2008, we find that there exists an inverse relationship between NIM and change in globalization of each country, which implies that globalization reduces banks’ NIM and improves the efficiency of banking system. However, this relationship only holds for bigger banks, but not for smaller banks.

Evaluating the Efficiency of Banking Systems During a Pre-Crisis and Crisis Period by Using Cluster Analysis (2004-2009)

The proposed study, by using cluster analysis, presents the unique methodology for determining the level of efficiency of banking systems in terms of crisis. It identifies a cause and relationship of various derivatives when applying the specialized tools to regulate the level of stability of the banking system. The proposed methodology assists in applying the presented studies to track the trends of governmental strategies in regulating the banking market applying the financial and performance indicators. Furthermore, this article presents the innovative methodology when assessing the level of effectiveness of national banking systems in relation to other countries, by carrying out the evaluation of the efficiency of governmental regulations compared with various international banking systems during the period of 2004-2009, and the implementation of the results by received economic interpretations.

Environmental Factors Affecting Hong Kong Banking: A Post-Asian Financial Crisis Efficiency Analysis

Within the banking efficiency analysis literature there is a dearth of studies which have considered how banks have 'survived' the Asian financial crisis of the late 1990s. Considering the profound changes that have occurred in the region's financial systems since then, such an analysis is both timely and warranted. This paper examines the evolution of Hong Kong's banking industry's efficiency and its macroeconomic determinants through the prism of two alternative approaches to banking production based on the intermediation and services-producing goals of bank management over the post-crisis period. Within this research strategy we employ Tone's (2001) Slacks-Based Model (SBM) combining it with recent bootstrapping techniques, namely the non-parametric truncated regression analysis suggested by Simar and Wilson (2007) and Simar and Zelenyuk's (2007) group-wise heterogeneous sub-sampling approach. We find that there was a significant negative effect on Hong Kong bank efficiency in 2001, which we ascribe to the fallout from the terrorist attacks in America in 9/11 and to the completion of deposit rate deregulation that year. However, post 2001 most banks have reported a steady increase in efficiency leading to a better 'intermediation' and 'production' of activities than in the base year of 2000, with the SARS epidemic having surprisingly little effect in 2003. It was also interesting to find that the smaller banks were more efficient than the larger banks, but the latter were also able to enjoy economies of scale. This size factor was linked to the exportability of financial services. Other environmental factors found to be significantly impacting on bank efficiency were private consumption and housing rent.

Efficiency of Islamic banks: case of North African Arab countries

PurposeThe purpose of this paper is twofold. The first and the most important is to examine the efficiency of Islamic banks relative to conventional banks operating in North African Arab countries, in terms of cost and revenue efficiency. The second objective is to assess more evidence regarding the banking system efficiency trend and dynamics in each single country, and to compare such trends among countries included in the study.Design/methodology/approachThe non‐parametric data envelopment analysis (DEA) was used to estimate cost and revenue efficiency scores assuming variable returns to scale (VRS). The sample consists of nine Islamic banks and 11 conventional banks.FindingsThe results indicated that Islamic banks achieved higher average revenue efficiency scores over conventional banks in this region, while the growth rate of revenue efficiency score of Islamic bank was less than conventional banks. In terms of cost efficiency, the results varied from country to another. The results also showed that both groups of banks were close to each other, with an advantage to conventional banks, which suffer less cost efficiency loss over time compared to Islamic banks.Research limitations/implicationsThe very limited data sources (banks' web sites) was was the main limitation faced during preparing for this research. Another limitation was the non‐regularity of annual reports.Practical implicationsIslamic banks are highly challenged in finding investment opportunities/avenues that comply with Islamic regulations, unlike conventional banks that can invest in fixed income securities. There is a serious need for some countries to deregulate their banking systems more, in order to enhance the compatibility and the efficiency of their banking, such as the case of Sudan.Originality/valueGiven the previously mentioned difficulties, decent data set were collected. The value of this paper is the use of nonparametric DEA to analyse cost and revenue efficiences in the countries of this region.

An empirical study for measure the relative performance of banking operations

Article history: Received October 19, 2011 Received in Revised form November, 14, 2011 Accepted 4 December 2011 Available online 8 December 2011 Structure analysis plays an important role on increasing the efficiency of banking industry. A change in structure of business in this industry could change the profitability, significantly. The proposed study of this paper aims at structural analysis and comparative advantages for a governmental bank in a province of Semnan, Iran called Melli bank. The proposed study considers the effectiveness of four saving plans including current, loaned with no interest, short and long term based in three periods. It applies the change of location-share model, which includes provincial growth influence, structural growth and competitive growth as the determinant variables in saving rate. Findings indicate the disproportionate growth of saving rate in the Melli bank toward the other banks of the province in every 3 terms of the study. The research results show that short time saving in 2001 and 2004, loaned without interest and short term savings in 2001 and 2008, loaned without interest and long term savings in 2004 and 2008 had negative structural changes which indicate that the combination of discussed saving wasn’t desirable, but other savings benefits of desirable combination. © 2012 Growing Science Ltd. All rights reserved.

Efficiency of Islamic and Conventional Banks in Pakistan: A Non-parametric Approach

The purpose of this paper is to analyze comparative efficiency of banking system in Pakistan comprising of Islamic banks (IB), conventional banks with Islamic banking division (IBD) and conventional banks (CB). For this purpose we use two methods: First, ratio analysis to analyze cost, revenue and profit efficiency; Second, data envelopment analysis (DEA), for comparative analysis of banks’ technical, pure technical and scale efficiencies. We use efficiency scores of DEA to analyze the impact of size on the efficiency. Finally, we compare and contrast the efficiency estimates with the traditional measures of banks efficiency. We find that Islamic bank is more cost efficient and less revenue efficient. Considering their growth rate which is rudiment to scale efficiency (SE) we argue that Islamic banks should be encouraged to reach the efficient frontier in the banking industry by reducing their wastes. We further observe that hybrid banking may not be feasible form for banking industry in Pakistan. In view of the observed inverse relationship of size with scale efficiency we recommend reconsideration of the regulators’ policy of increasing the capital base of the banks thus forcing them to increase their size.

Политика стабилизации экономики в Латинской Америке

Seemingly, the experience of Latin American countries in the crisis period and before may be useful for Russia to address its highly essential tasks of the countercyclical policy improvement, investment climate enhancement, the reduction of state's direct participation in economy, raising of the banking system efficiency and competitiveness. Such experience will be significant to achieve optimal economic criteria for passing on to the inflation targeting principle.

The Market Competition, Law Enforcement, and Banking System’s Efficiency in China

In economic literature, the benefit of competition is well recognized, for example, it could reduce monopoly rents and cost inefficiencies, and finally improve the welfare of the economy. In the case of banking system, the market competition in banking sector could improve efficiency of the banking system as a whole, and promote economic growth as a result. However, the effect of competition on banking system’s efficiency hinges on some environmental factors, such as the efficiency of law enforcement. In this paper, we measure the level and evolution of bank system’s competition between 1996 and 2009. Making use of the micro data of Chinese commercial banks from 1996 to 2009, we choose the RP method to measure the competition level of China’s banking system. Then we study the relationship between market competition, law enforcement and Chinese banking system efficiency, which shows that higher market completion could lead to more efficient banking system. This effect is more salient when law enforcement is more efficient.

The Macroeconomic Determinants of Banking Efficiency: An Empirical Analysis of South Africa Against the Rest of the World

The efficiency of a nation’s banking industry is a critical factor in the quest to realize economic growth and prosperity for its citizens. This study identifies a host of macroeconomic factors which have been shown to have a strong causal link with the efficient operation of a given banking industry. The efficiency of the South African banking industry is found to be lagging behind most of the twenty representative countries, notwithstanding the way one classifies efficiency. Only among some nations from the South American and Eastern European regions is South Africa’s banking industry efficiency profile comparable.The increase in the size of skilled and available work force, the growth in the size of real spendable per capita GDP, the wide availability of technology and computers, all positively increase the efficient operation of a banking industry. The erosion of an economy’s currency has a negative effect on efficiency but this is not found to be significant across all efficiency measures. The findings point to significant drivers, that if found to be lacking, are likely to indicate a climate of inefficiency. Finally we use Data Envelopment Analysis (DEA) to measure the efficiency of Decision Making Units (DMU’s), in this case, individual banks. However, unlike other studies, we use it as a robustness check of the previous empirical results. These two distinct methods yield near identical results. We conclude that the major causes of inefficiency seem to be structural; the concentrated ownership of the sector, interlocking directorships on bank boards and the oligopolistic nature of the industry mean that South Africa’s customers are paying too high a price for intermediary services.

Banking Efficiency and Financial Development in Sub-Saharan Africa

This study assesses the determinants of banking system efficiency in sub-Saharan Africa (SSA) and asks what, besides the degree of efficiency, explains the low level of financial development in the region. It uses stochastic frontier analysis to measure efficiency and a generalized method of moments system to explain financial development. SSA banks are found to be generally cost-efficient, but nonperforming loans undermine efficiency, which suggests that improvement in the regulatory and credit environments should improve efficiency. The political and the economic environment have held back financial development in SSA.

Banking Efficiency and Financial Development in Sub-Saharan Africa

This study assesses the determinants of banking system efficiency in sub-Saharan Africa (SSA) and asks what, besides the degree of efficiency, explains the low level of financial development in the region. It uses stochastic frontier analysis to measure efficiency and a generalized method of moments system to explain financial development. SSA banks are found to be generally cost-efficient, but nonperforming loans undermine efficiency, which suggests that improvement in the regulatory and credit environments should improve efficiency. The political and the economic environment have held back financial development in SSA.

Risk‐adjusted efficiency and risk aversion in the agricultural banking industry

PurposeThe purpose of this paper is to examine the performance of the agricultural banking industry using both traditional and risk‐adjusted non‐parametric efficiency measurement techniques. In addition to computing efficiency scores, the risk preference structure of the agricultural banking industry is examined.Design/methodology/approachThe paper used data envelopment analysis (DEA) to examine the efficiency of agricultural banks in the year 2001. Standard cost efficiency is computed and compared to both profit and risk‐adjusted profit efficiency scores. The risk‐adjustment is a modification of traditional DEA wherein firm preferences are represented via a mean‐variance criterion. The risk‐adjusted technique also provides estimates of firm level risk aversion.FindingsResults from the traditional approach that does not account for risk indicate a low degree of efficiency in the banking industry, while the risk‐adjusted approach indicates banks are much more efficient. On average, 77 percent of the inefficiency identified by the standard DEA formulation is actually attributable to risk averse behavior by the firm. In addition, most banks appear to be substantially risk averse.Research limitations/implicationsThe risk‐adjusted DEA technique used in this study should be applied to other, diverse data sets to examine its performance in a broader context.Practical implicationsResults from this study support the idea that traditional DEA methods may mischaracterize the level of efficiency in the data if agents are risk averse. In addition, the paper outlines a practical method for deriving firm level risk aversion coefficients.Originality/valueThis paper sheds light on the agricultural banking industry and illustrates the power of a new efficiency and risk analysis technique.

El impacto de la entrada de la banca extranjera en los países en desarrollo

Realizamos una revisión de la literatura para explicar los factores que determinan la presencia de la banca extranjera en países en desarrollo. Asimismo, analizamos las evidencias empíricas de la entrada de esta banca en la eficiencia de la local y las repercusiones en la estabilidad de los sistemas bancarios locales. Consideramos que existen aspectos que no se han estudiado y pueden ser relevantes para la estabilidad del sector bancario de un país en desarrollo. Por ello proponemos realizar investigaciones sobre el impacto de la entrada de la banca externa en el crecimiento económico y las implicaciones de la evolución económica del país huésped y el país de origen en las actividades de esas instituciones extranjeras. El propósito es intentar despertar el interés de los investigadores por estudios que aporten un mayor conocimiento en este tema.

Bank Reforms, Competition and Efficiency in China's Banking System: Are Small City Bank Entrants More Efficient?

AbstractThis paper analyzes technical efficiency in China's banking system by large banks and small city banks as well as the pre‐WTO and post‐WTO accession periods. Using an unbalanced panel dataset for 63 banks over 1997–2006 and employing the stochastic frontier function approach, the empirical results reveal that the new entrants, small city banks, experienced a slightly higher efficiency score than incumbent large banks, on average. Compared with the pre‐WTO accession period, the efficiency score is found to have improved significantly after entry into the WTO as a result of the competition effect. This competition effect is particularly relevant for small city banks. Finally, determinants of X‐inefficiency are examined.

Efficiency and productivity of Greek banks in the EMU era

We provide a characterization of the Greek banking system's efficiency and productivity under the new environment that the Economic and Monetary Union (EMU) participation implies. We consider cost and profit efficiency as well as productivity change of commercial banks using the nonparametric Data Envelopment Analysis (DEA) and the Total Factor Productivity (TFP) Malmquist Index. The period under study is 1998-2003 covering Greece's entry into the euro area in 2001 and the run-up to it. Moreover, enhanced competition along with lower inflation and interest rates has further motivated financial innovation and Off-Balance Sheet (OBS) business. Our findings suggest that cost efficiency has risen by 4.3% over the 6 years under study. Moreover, Greek banks seem to enjoy relatively high profit efficiency (on average 75%) showing an increase by 93% over 1998-2003. Similarly, productivity seems to have risen by 15% and this was mainly driven by the improvements in the performance of best-practice institutions. Our results do not show any role for OBS activities in Greek banks' efficiency. Finally, while the impact of profitability and size on efficiency and productivity yields mixed results, our empirical findings seem to corroborate previous studies in that controlling for risk preferences is important in determining bank efficiency.

THE RESEARCH OF CONCENTRATION EFFECT ON BANKING SYSTEM FINANCIAL STABILITY

The consolidation and concentration of banks around the globe is fueling an active public debate among scientists and politicians on the impact of concentration on banking system efficiency, competition, financial and hence macroeconomic stability. There has been greater tolerance of concentration in banking than in other industries, because of a presumed benefit of increased financial stability. As the results of many researches show the level of concentration in banking is higher than in other industries. The importance of concentration effect on banking system stability increased for several reasons in recent years. The main reason is substantial processes of banks consolidation and concentration both at a global and national level. Central banks and prudential regulators have responded to recent consequences of financial crises with an increased focus on financial stability. The third reason is growing interest of researchers on concentration effect on banking system efficiency, stability and economic growth. Growing focus on baking system stability is not surprising, given banks’ central role in financial systems and economies. During several decades the boundaries between banks and other parts of financial markets have been gone as banks have expanded into other activities including in securities markets, funds management and insurance. The dramatic growth in the assets size of the global banks over the past two decades had strengthened theirs role both at a global and national level. The aim of this article is to analyze global trends in banking concentration and concentration effect on banking system stability. The research methods were used in this paper: the analysis and synthesis of scientific literature, correlation and regression analysis, statistical methods as well as empirical research of the information on 162 banking systems concentration during period of 1987-2007. The research results had showed that concentration level of banking systems decreased to 71 percent in 2007 during analyzed period of 1987-2007. The analysis does not provide support for the view that bank concentration is closely associated with the stability of the banking system.