FINANCIAL CRISIS, IMF, AND BANK EFFICIENCY: EMPIRICAL EVIDENCE FROM THE ASEAN-4 BANKING SECTORS
Abstract
Despite its severity and deep influence on both the real and financial sectors, empirical evidence on the evolution of the performance of the ASEAN-4 banking sectors since the 1997-1998 Asian financial crisis is relatively scarce. By employing the Data Envelopment Analysis (DEA) approach the present study examines for the first time the impact of the Asian financial crisis on the efficiency of the ASEAN-4 countries banking sectors. This study focuses on two major approaches vis. intermediation and revenue approaches. The empirical findings suggest that the estimates of technical efficiency are consistently higher under the revenue approach. We find that banks are relatively inefficient in a more concentrated banking market. However, when we control for countries that participate in IMF program, the concentration ratio exhibits a positive relationship with bank efficiency levels, implying that the more concentrated banking system which participates in IMF program is relatively more efficient in their intermediation function during the post crisis period.
Keywords: Bank, Efficiency, DEA, ASEAN.
JEL Classification: G21; G28
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References
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McDonald, J. (2009), Using Least Squares and Tobit in Second Stage DEA Efficiency Analyses, European Journal of Operational Research 197, 792-798.
Matthews, K. and Ismail, M. (2005), Efficiency and Productivity Growth of Domestic and Foreign Commercial Banks in Malaysia, Working Paper, Cardiff Business School.
Pasiouras, F., Liadaki, A. and Zopounidis, C. (2008), Bank Efficiency and Share Performance: Evidence from Greece, forthcoming in Applied Financial Economics.
di Patti, E.B. and Hardy, D.C. (2005), Financial Sector Liberalization, Bank Privatization, and Efficiency: Evidence from Pakistan, Journal of Banking and Finance 29 (8-9), 2381-2406.
Radelet, S. and Sachs, J. (1998), The East Asian Financial Crisis: Diagnosis, Remedies, Prospects, Brookings Papers on Economic Activity 1, 1-74.
Sathye, M. (2003), Efficiency of Banks in a Developing Economy: The Case of India, European Journal of Operational Research 148 (3), 662-671.
Shanmugam, K.R. and Das, A. (2004), Efficiency of Indian Commercial Banks During the Reform Period, Applied Financial Economics 14, 681-686.
Simar, L. and Wilson, P. (2007), Estimation and Inference in Two-Stage, Semi-Parametric Models of Production Process, Journal of Econometrics 136, 31-64.
Souza, G. and Staub, R. (2007), Two-Stage Inference Using Data Envelopment Analysis Efficiency Measurements in Univariate Production Models, Transactions in Operations Research 14, 245-258.
Unite, A.A. and Sullivan, M.J. (2003), The Effect of Foreign Entry and Ownership on the Philippine Domestic Banking Market, Journal of Banking and Finance 27 (12), 2323-2345.
White, H. J. (1980), A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica 48, 817-838.
Williams, J. and Nguyen, N. (2005), Financial Liberalisation, Crisis, and Restructuring: A Comparative Study of Bank Performance and Bank Governance in South East Asia, Journal of Banking and Finance 29, 2119 -2154.
World Bank (2000), Global Economic Prospects and Developing Countries.
Ataullah, A. and Le, H. (2006), Economic Reforms and Bank Efficiency in Developing Countries: The Case of the Indian Banking Industry, Applied Financial Economics 16, 653-663.
Banker, R.D. and Natarajan, R. (2008), Evaluating Contextual Variables Affecting Productivity Using Data Envelopment Analysis, Operations Research 56 (1), 48-58.
Benston, G.J. (1965), Branch Banking and Economies of Scale, Journal of Finance 20 (2), 312-331
Berg, A., and C. Pattillo, (1999), Predicting Currency Crises: The Indicators and an Alternative, Journal of International Money and Financen18, 561-586.
Berger, A.N. and DeYoung (1997), Problem Loans and Cost Efficiency in Commercial Banks, Journal of Banking and Finance 21 (6), 849-870.
Berger, A.N and Humphrey, D.B. (1992), Measurement and Efficiency Issues in Commercial Banking, in Z.Griliches, (eds.), Measurement Issues in the Service Sectors. National Bureau of Economic Research: University of Chicago Press, 245-279.
Berger, A.N. and Humphrey, D.B. (1997), Efficiency of Financial Institutions: International Survey and Directions for Future Research, European Journal of Operational Research 98, 175-212.
Berger, A.N., Hunter, W.C. and Timme, S.G. (1993), The Efficiency of Financial Institutions: A Review and Preview of Research Past, Present and Future, Journal of Banking and Finance 17, 221-249.
Berger A.N. (2007), International Comparisons of Banking Efficiency, Financial Markets, Institutions and Instruments 16, 119 -144.
Bhattacharya, A., Lovell, C.A.K. and Sahay, P. (1997) The Impact of Liberalization on the Productive Efficiency of Indian Commercial Banks, European Journal of Operational Research 98, 332-345.
Chang, H., Choy, H.L., Cooper, W.W. and Lin, M.W. (2008), The Sarbanes-Oxley Act and the Production Efficiency of Public Accounting Firms in Supplying Accounting Auditing and Consulting Services: An Application of Data Envelopment Analysis, International Journal of Services Sciences 1 (1), 3-20.
Coelli, T. (1996), A Guide to DEAP Version 2.1: A Data Envelopment Analysis (Computer Program), Working Paper, CEPA, University of New England, Armidale.
Drake, L. and Hall, M.J.B. (2003), Efficiency in Japanese Banking: An Empirical Analysis, Journal of Banking and Finance 27, 891-917.
Drake, L., Hall, M.J.B. and Simper, R. (2006), The Impact of Macroeconomic and Regulatory Factors on Bank Efficiency: A Non-Parametric Analysis of Hong Kong’s Banking System, Journal of Banking and Finance 30 (5), 1443-1466.
Fukuyama, H. (1993), Technical and Scale Efficiency of Japanese Commercial Banks: A Non-Parametric Approach, Applied Economics 25, 1101-1012.
Fukuyama, H. (1995), Measuring Efficiency and Productivity Growth in Japanese Banking: A Non-Parametric Approach, Applied Financial Economics 5 (2), 95-107.
Hardy, D.C. and di Patti, E.B. (2001), Bank Reform and Bank Efficiency in Pakistan, Working Paper, International Monetary Fund. Washington DC: IMF.
Humphrey, D.B. and Pulley, L.B. (1997), Banks’ Responses to Deregulation: Profits, Technology, and Efficiency, Journal of Money, Credit and Banking 29, 73-93.
Iimi, A. (2004), Banking Sector Reforms in Pakistan: Economies of Scale and Scope, and Cost Complementarities, Journal of Asian Economics 15 (3), 507-527.
Isik, I. and Hassan, M.K. (2002), Technical, Scale and Allocative Efficiencies of Turkish Banking Industry, Journal of Banking and Finance 26 (4), 719-766
Isik, I. and Hassan, M.K. (2003), Financial Disruption and Bank Productivity: The 1994 Experience of Turkish Banks, The Quarterly Review of Economics and Finance 43, 291-320.
Kwan, S. H. (2003), Operating Performance of Banks Among Asian Economies: An International and Time Series Comparison, Journal of Banking and Finance 27 (3), 471-489.
Leightner, J.E. and Lovell, C.A.K. (1998), The Impact of Financial Liberalization on the Performance of Thai Banks, Journal of Economics and Business 50, 115-131.
Lozano-Vivas, A. and Pasiouras, F. (2008), The Impact of Non-Traditional Activities on the Estimation of Bank Efficiency: International Evidence, Working Paper, University of Bath.
McDonald, J. (2009), Using Least Squares and Tobit in Second Stage DEA Efficiency Analyses, European Journal of Operational Research 197, 792-798.
Matthews, K. and Ismail, M. (2005), Efficiency and Productivity Growth of Domestic and Foreign Commercial Banks in Malaysia, Working Paper, Cardiff Business School.
Pasiouras, F., Liadaki, A. and Zopounidis, C. (2008), Bank Efficiency and Share Performance: Evidence from Greece, forthcoming in Applied Financial Economics.
di Patti, E.B. and Hardy, D.C. (2005), Financial Sector Liberalization, Bank Privatization, and Efficiency: Evidence from Pakistan, Journal of Banking and Finance 29 (8-9), 2381-2406.
Radelet, S. and Sachs, J. (1998), The East Asian Financial Crisis: Diagnosis, Remedies, Prospects, Brookings Papers on Economic Activity 1, 1-74.
Sathye, M. (2003), Efficiency of Banks in a Developing Economy: The Case of India, European Journal of Operational Research 148 (3), 662-671.
Shanmugam, K.R. and Das, A. (2004), Efficiency of Indian Commercial Banks During the Reform Period, Applied Financial Economics 14, 681-686.
Simar, L. and Wilson, P. (2007), Estimation and Inference in Two-Stage, Semi-Parametric Models of Production Process, Journal of Econometrics 136, 31-64.
Souza, G. and Staub, R. (2007), Two-Stage Inference Using Data Envelopment Analysis Efficiency Measurements in Univariate Production Models, Transactions in Operations Research 14, 245-258.
Unite, A.A. and Sullivan, M.J. (2003), The Effect of Foreign Entry and Ownership on the Philippine Domestic Banking Market, Journal of Banking and Finance 27 (12), 2323-2345.
White, H. J. (1980), A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica 48, 817-838.
Williams, J. and Nguyen, N. (2005), Financial Liberalisation, Crisis, and Restructuring: A Comparative Study of Bank Performance and Bank Governance in South East Asia, Journal of Banking and Finance 29, 2119 -2154.
World Bank (2000), Global Economic Prospects and Developing Countries.
Published
2010-10-29
How to Cite
Sufian, F., & Habibullah, M. S. (2010). FINANCIAL CRISIS, IMF, AND BANK EFFICIENCY: EMPIRICAL EVIDENCE FROM THE ASEAN-4 BANKING SECTORS. Buletin Ekonomi Moneter Dan Perbankan, 12(2), 133-159. https://doi.org/10.21098/bemp.v12i2.353
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
