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Bank efficiency and productivity in selected ASEAN banking sectors

The analysis of the performance of the banking sectors continued to receive considerable attention from researchers and policymakers alike. The rapid pace of liberalization of the financial sectors worldwide has resulted in an increasingly competitive environment. At the banks level, under performan...

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Main Author: Sufian, Fadzlan
Format: Thesis
Language:English
English
Published: 2011
Online Access:http://psasir.upm.edu.my/id/eprint/27226/1/FEP%202011%2016R.pdf
http://psasir.upm.edu.my/id/eprint/27226/
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spelling my.upm.eprints.272262014-01-20T01:07:14Z http://psasir.upm.edu.my/id/eprint/27226/ Bank efficiency and productivity in selected ASEAN banking sectors Sufian, Fadzlan The analysis of the performance of the banking sectors continued to receive considerable attention from researchers and policymakers alike. The rapid pace of liberalization of the financial sectors worldwide has resulted in an increasingly competitive environment. At the banks level, under performance has consequences not only on the banks’ profitability, but also for its probability to survive in a competitive environment. An inefficient bank may be forced out of the market by its relatively efficient peers. Furthermore, if the banking sector is inefficient, the interest rate spreads could potentially be higher, reflecting the high operating costs arising from the management’s ability to optimally combine its inputs and outputs. For the reasons mentioned above, the issue of reducing the underperformance of the banking sector has become one of the main priorities of bank managers and policymakers. The present study concerns with the analysis of bank efficiency and productivity in the ASEAN-5 countries. The analysis is confined to the period from 1996 to 2008. The two-stage approach is employed for this study. In the first stage, the non-parametric Data Envelopment Analysis (DEA) and Malmquist Productivity Index (MPI) methods are used to examine the efficiency and total factor productivity change of the banks in the sample respectively. In the second stage, the Ordinary Least Square (OLS) and Generalized Methods of Moments (GMM) are employed to regress the efficiency and total factor productivity scores derived from the DEA and MPI on internal (bank specific) and external (macroeconomic and financial markets) factors, which could influence the efficiency and productivity levels of the banks in the sample. In essence, the empirical findings from this study highlight the existence of sizable scale inefficiency among banks operating in the ASEAN-5 banking sectors. The results imply that banks operating in the ASEAN-5 banking sectors are either too small to benefit from the economies of scale, or too large to be scale efficient. Thus, with respect to their scale of operations, banks in the ASEAN-5 banking sectors are likely to lose sizeable output. The present study also demonstrates that the banking sector of the high income country has consistently exhibit a higher level of technical efficiency compared to the low and middle income countries banking sectors. The empirical findings from this study also bring forth the importance of size in determining banks’ total factor productivity growth rate. The empirical findings suggest that the small banks with its limited capabilities are at disadvantage compared to their large bank peers. Within the context of the ASEAN-5 banking sectors, most of the banks were relatively small by global standards. Going forward, constant technological upgrades and investments in the state of the art technologies should be an essential policy in order to improve the rate of total factor productivity growth of the ASEAN-5 banking sectors. 2011-05 Thesis NonPeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/27226/1/FEP%202011%2016R.pdf Sufian, Fadzlan (2011) Bank efficiency and productivity in selected ASEAN banking sectors. PhD thesis, Universiti Putra Malaysia. English
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
language English
English
description The analysis of the performance of the banking sectors continued to receive considerable attention from researchers and policymakers alike. The rapid pace of liberalization of the financial sectors worldwide has resulted in an increasingly competitive environment. At the banks level, under performance has consequences not only on the banks’ profitability, but also for its probability to survive in a competitive environment. An inefficient bank may be forced out of the market by its relatively efficient peers. Furthermore, if the banking sector is inefficient, the interest rate spreads could potentially be higher, reflecting the high operating costs arising from the management’s ability to optimally combine its inputs and outputs. For the reasons mentioned above, the issue of reducing the underperformance of the banking sector has become one of the main priorities of bank managers and policymakers. The present study concerns with the analysis of bank efficiency and productivity in the ASEAN-5 countries. The analysis is confined to the period from 1996 to 2008. The two-stage approach is employed for this study. In the first stage, the non-parametric Data Envelopment Analysis (DEA) and Malmquist Productivity Index (MPI) methods are used to examine the efficiency and total factor productivity change of the banks in the sample respectively. In the second stage, the Ordinary Least Square (OLS) and Generalized Methods of Moments (GMM) are employed to regress the efficiency and total factor productivity scores derived from the DEA and MPI on internal (bank specific) and external (macroeconomic and financial markets) factors, which could influence the efficiency and productivity levels of the banks in the sample. In essence, the empirical findings from this study highlight the existence of sizable scale inefficiency among banks operating in the ASEAN-5 banking sectors. The results imply that banks operating in the ASEAN-5 banking sectors are either too small to benefit from the economies of scale, or too large to be scale efficient. Thus, with respect to their scale of operations, banks in the ASEAN-5 banking sectors are likely to lose sizeable output. The present study also demonstrates that the banking sector of the high income country has consistently exhibit a higher level of technical efficiency compared to the low and middle income countries banking sectors. The empirical findings from this study also bring forth the importance of size in determining banks’ total factor productivity growth rate. The empirical findings suggest that the small banks with its limited capabilities are at disadvantage compared to their large bank peers. Within the context of the ASEAN-5 banking sectors, most of the banks were relatively small by global standards. Going forward, constant technological upgrades and investments in the state of the art technologies should be an essential policy in order to improve the rate of total factor productivity growth of the ASEAN-5 banking sectors.
format Thesis
author Sufian, Fadzlan
spellingShingle Sufian, Fadzlan
Bank efficiency and productivity in selected ASEAN banking sectors
author_facet Sufian, Fadzlan
author_sort Sufian, Fadzlan
title Bank efficiency and productivity in selected ASEAN banking sectors
title_short Bank efficiency and productivity in selected ASEAN banking sectors
title_full Bank efficiency and productivity in selected ASEAN banking sectors
title_fullStr Bank efficiency and productivity in selected ASEAN banking sectors
title_full_unstemmed Bank efficiency and productivity in selected ASEAN banking sectors
title_sort bank efficiency and productivity in selected asean banking sectors
publishDate 2011
url http://psasir.upm.edu.my/id/eprint/27226/1/FEP%202011%2016R.pdf
http://psasir.upm.edu.my/id/eprint/27226/
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score 13.211869

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