Efficiency and productivity of Greek banks in the EMU era

Abstract

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.

Profit efficiency of banks in Colombia with undesirable output: a directional distance function approach

“…The early empirical literature, which analyzed the efficiency and productivity of financial institutions by using either parametric or non-parametric frontier methods, is mainly dominated by studies on the United States and other industrialized countries (Berger and Humphrey 1997;Amel et al 2002, Fiordelisi et al 2011. In recent years, however, great attention has been devoted to analyzing the efficiency and productivity of banking sectors in developing economies (e.g., Carvallo and Kasman 2005;Staikouras et al 2008;Olson and Zoubi 2011;Vu and Nahm 2013) and studying the impact of the macroeconomic environment on banking efficiency (e.g., Drake et al 2006;Sufian 2009), as well as to financial deregulation (e.g., Das and Ghosh 2009;Pasiouras 2009;Barth et al 2013, Chortareas et al 2009 Other studies have explored the effects of bank-specific characteristics on performance by incorporating into the analysis, for example, bank strategy, ownership structure, corporate governance and risk-taking, liquidity levels, capital, and loan-loss provisioning, among other aspects. 3 Loans represent a major share of the total outputs provided by a bank, but as lending involves risk, there is always the possibility for a loan to become non-performing (Chang and Chiu 2006).…”

The Impact of Non-interest Income on the Efficiency of China’s Banking Sector

“…This conclusion is in some extent same as the research from Note: (1) t-value in parentheses; (2) ***, **, and * indicate statistical significance at the 99%, 95%, and 90% levels, respectively. Jagtiani et al [14], Pasiouras [15] and Chortareas et al [16], which show that the inclusion of non-interest income seems to have no significant impact on the efficiency and productivity of banking industry. For China's baking sector, the main reason may be attributed to two aspects: first, most domestic commercial banks intentionally transfer directly a certain proportion of interest income into non-interest income because of limited ways to obtain non-interest income thus the noninterest income share is overestimated in some extent.…”

“…Chortareas et al [16] use DEA based Malmquist Productivity Index to investigate the impact of off-balance sheet items on Greek banking sector during the period from 1998 to 2003 and also find that the inclusion of OBS items seems to have no significant impact on the efficiency and productivity of Greek banking system. Kozo Harimaya [17] examines the impact of entering into the trust business on cost structure of Japanese regional banks by measuring economies of scale and scope during the period from 1994 to 2003, and finds that such nontraditional banking activities yield no cost reduction for Japanese regional banks.…”

A multi-criteria analysis of the banking system in the Republic of Croatia

“…Since this indicator is a ratio of the total equity (original and earned) of the bank and its total assets, it can be concluded that it is desirable that the value of this indicator should be as great as possible (Chortareas, Girardone and Ventouri, 2009). Since the liabilities of a bank consist of equity and liabilities, the rule holds: the greater the proportion of equity, the smaller the proportion of bank liabilities in total liabilities.…”

“…1) Net interest margin is one of the best known profitability indicators, and is used exclusively in the banking system, for it refers to the interest margin obtained in the operations of the bank as compared to the total assets of the bank used (Berrios, 2013). The value of this indicator is calculated according to the following ratio: a multi-criteria analysis of the banking system in the republic of croatia financial theory and practice 37 (4) 403-422 (2013) 407 X 1 = net interest margin = net earnings from interest / total bank assets (1) Net interest earnings can be seen from the profit and loss accounts for 2010, while the total bank assets can be derived from the final balance sheet for 2010. Interest earnings are the main profit generator for every commercial bank.…”