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Literature Review of Bank Efficiency

In: Business and Management

Submitted By SABER
Words 284
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Measuring the efficiency and productivity of banking firms has been playing a predominant role in helping managers or regulators to achieve a better understanding of the success or failure of policy strategies and make better decisions. Furthermore, the evaluation results of efficiency are also of major importance to stock owners, depositors and investors.

The researches in the articles, which focus on the question of whether banks’ ownership structure influences their efficiency, conclude that ownership matters. Banks could be normally divided into three categories according to their ownership, namely domestic private ownership, government-owned banks and foreign-owned banks. (Bonin et al., 2005) Altunbas et al. (2001) carried out a series of methodologies, such as stochastic-frontier, standard cost function and profit function approaches, to evaluate cost and profit frontiers of German banks separately and concluded that private owned banks were not more efficient than their public sector counterparts. Although both ownerships have benefited from the economies of scale and technical progress, private owned banks appeared to be less cost and profit efficient than public banks according to the inefficiency measures.
The situation is similar in transition countries. Bonin et al. (2005) investigated 11 transition countries and claimed that private ownership was not sufficient to increase bank efficiency as they did not find enough evidence to prove that private owned banks are more efficient than government owned banks, which is consistent with Altunbas’s conclusions. Additionally, Bonin et al. (2005) also found evidence that foreign owned banks, especially those with strategic owners, were associated with greater cost efficiency and better services. In contrast with the Bonin’s viewpoints, Lensink et al. (2008) suggested that normally the foreign owned banks tended to show disadvantages in bank efficiency.

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