Cost Efficiency of Banks in Transition: Evidence from 289 Banks in 15 Post-Communist Countries
EBRD Working Paper No. 86
Posted: 15 Jun 2004
Date Written: April 2004
Abstract
To understand the transformation of banking in the post-communist transition, this paper examines the cost efficiency of 289 banks in 15 east European countries. The findings showed that banking systems in which foreign-owned banks have a larger share of total assets record lower costs and that the association between a country's progress in banking reform and cost efficiency is non-linear. Early stages of reform are associated with cost reductions, while costs tend to rise at more advanced stages. Private banks are more efficient than state-owned banks, but there are differences among private banks. Privatised banks with majority foreign ownership are the most efficient and those with domestic ownership are the least.
Keywords: Transition economies, banking, cost efficiency
JEL Classification: C30, G21, P20
Suggested Citation: Suggested Citation