Research Article
BibTex RIS Cite

VARIATON OF BANKING COST EFFICIENCIES IN CENTRAL ASIA AND MONGOLIA

Year 2016, Issue: 70, 53 - 62, 01.05.2016

Abstract

In this paper we seek to investigate differences between banking cost efficiencies among commercial banks in Central Asian countries and Mongolia. In analysis different approaches to liberalization and natural resources exporting characteristics of these countries have been focused as one of the main determinants for cost efficiency variation. Cost efficiency scores estimations are based on transcendental logarithmic stochastic frontier panel data model proposed by Battese & Coelli (1995). Dataset used in the study includes period of 2007-2013. Results indicate that less liberalization policy in the banking systems cause low intensity of competition, which in turn characterized by monopolization of banking sectors by large state owned banks. This tendency results in the low efficiency of commercial banks. Monopolization along with the relative abundance of financial resources accumulated through the export of natural resources and constraints on banking activity may lead to a situation described as “quiet life hypothesis”

References

  • Aigner, D., Lovell, C. K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6(1), 21-37.
  • Al-Jarrah, I. M., & Gharaibeh, H. (2009). The efficiency cost of market power in banking: a test of the “quiet life” and related hypotheses in the Jordan’s banking industry. Jordan: Investment Management and Financial Innovations.
  • Asian Development Bank Institute (ADBI) (2014). Connecting Central Asia with Economic Centers. Kasumigaseki, Japan
  • Barra, C., Bimonte, G., & Zotti, R. (2016). On the relationship among efficiency, capitalization and risk: does management matter in local banking market?. Applied Economics, 1-23.
  • Battese, G. E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical economics, 20(2), 325-332.
  • Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking & Finance, 21(6), 849-870.
  • Berger, A. N., & Mester, L. J. (1997). Efficiency and productivity change in the US commercial banking industry: A comparison of the 1980s and 1990s (No. 97-5).
  • Bonin, J. P., Hasan, I., & Wachtel, P. (2005). Privatization matters: Bank efficiency in transition countries. Journal of Banking & Finance, 29(8), 2155-2178.
  • Coleman, B.E., Goffe, V., Perolli, B., Usupova, M., Castillo, L.V., Holzhacker, H., Orlova, N., Sologoub, D., Frewer, G., Hacibedel, B. and Kappeler, A. (2012). Banking in the Eastern neighbours and Central Asia: Challenges and opportunities. Regional Studies and Roundtables, European Investment Bank (EIB).
  • Djalilov, K., & Piesse, J. (2011). Financial development and growth in transition countries: A study of Central Asia. Emerging Markets Finance and Trade, 47(6), 4-23.
  • Djalilov, K., & Piesse, J. (2014). The determinants of bank efficiency in Central Asia. Corporate Ownership and Control, 12(1), 656-670.
  • Dowling, M., & Wignaraja, G. (2006). Mapping Future Prospects to 2015. Central Asia – Caucasus Institute, Silk Road Studies Program, A Joint Transatlantic Research and Policy Center,
  • Di Patti, E. B., & Hardy, D. C. (2005). Financial sector liberalization, bank privatization, and efficiency: Evidence from Pakistan. Journal of Banking & Finance, 29(8), 2381-2406.
  • Fiordelisi, F., Marques-Ibanez, D., & Molyneux, P. (2011). Efficiency and risk in European banking. Journal of Banking & Finance, 35(5), 1315-1326.
  • Fries, S., & Taci, A. (2005). Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries. Journal of Banking & Finance, 29(1), 55-81.
  • Fiorentino, E., Karmann, A., & Koetter, M. (2006). The cost efficiency of German banks: a comparison of SFA and DEA. Available at SSRN 947340.
  • Fleming, A., Bokros, L., & Votava, C. (Eds.). (2001). Financial transition in Europe and Central Asia: challenges of the new decade. World Bank Publications.
  • Hasan, I., & Marton, K. (2003). Development and efficiency of the banking sector in a transitional economy: Hungarian experience. Journal of Banking & Finance, 27(12), 2249-2271.
  • Hahm, H., & Yenier, D. (1998). Financial Sector Reforms ECONOMIC in Mongolia Development. World Bank, EDI Working Papers 18873
  • Hicks, J. (1935): “The Theory of Monopoly.” Econometrica, 3, 1–20.
  • IMF, (2014). The Caucasus and Central Asia: transitioning to emerging markets, Middle East and Central Asia Department, Washington
  • IMF, (2015). Reginal Economic Outlook: Middle East and Central Asia., Washington
  • Khalova, G.O., & Talmy, V. (1999). The Banking System and Monetary Policy in Turkmenistan. Russian & East European Finance and Trade, 35, 5, pp. 45-74
  • Košak, M., & Zajc, P. (2006). Determinants of bank efficiency differences in the new EU member countries. Financial Stability Report, 29.
  • Kraft, E., Hofler, R., & Payne, J. (2006). Privatization, foreign bank entry and bank efficiency in Croatia: a Fourier-flexible function stochastic cost frontier analysis. Applied Economics, 38(17), 2075-2088.
  • Khongorzul, D. (2007). Mongolia and Central Asia in Transition. Ritsemeikan Asia Pacific, 3, pp. 117-149.
  • OECD, (2011). Competitiveness and Private Sector Development Competitiveness and Private Sector Development: Central Asia 2011 Competitiveness Outlook: Competitiveness Outlook, OECD Publishing
  • Pomfret, R. (2009). Central Asia and the Global Economic Crisis. EUCAM policy Brief No. 7, June 2009
  • Pruteanu-Podpiera, A., Weill, L., & Schobert, F. (2007). Market Power and Efficiency in the Czech Banking Sector. CNB.
  • Sealey, C. W., & Lindley, J. T. (1977). Inputs, outputs, and a theory of production and cost at depository financial institutions. The Journal of Finance, 32(4), 1251-1266.
  • Shagdar, E. (2007). Neo-liberal ‘shock therapy’policy during the Mongolian economic transition (No. 0703e). ERINA discussion paper.
  • Uyanik, T., & Segni, C. (2001). Evolution of the Banking Sector in Central Asia. Financial Transition in Europe and Central Asia: Challenges of the New Decade, 97.

ВАРИАЦИЯ ЭФФЕКТИВНОСТИ ПО ИЗДЕРЖКАМ В БАНКОВСКИХ СЕКТОРАХ СТРАН ЦЕНТРАЛЬНОЙ АЗИИ И МОНГОЛИИ

Year 2016, Issue: 70, 53 - 62, 01.05.2016

Abstract

В данной работе исследованы различия показателей эффективности по издержкам
в банковских секторах стран Центральной Азии и Монголии. В качестве основного
фактора различия эффективности банковской деятельности рассматриваются уровень
либерализации экономики и объем экспорта энергоресурсов. При расчете показателя
эффективности по издержкам банковских секторов был применен метод
стохастического фронтирного анализа на основе транслогарифмической модели,
разработанной Battese & Coelli (1995) для панельных данных. В работе использованы
панельные данные с охватом периода с 2007 по 2013 г. Результаты исследования
показывают, что меньшая либерализация экономики приводит к слабой конкуренции и
монополизации банковского сектора крупными государственными банками и к
низкому уровню эффективности по издержкам банковских секторов. Изобилие
финансовых ресурсов, полученных от экспортирования энергоресурсов и ограничений
в банковской деятельности, может привести к ситуации, объясняемой гипотезой,
известной в литературе как «quiet life hypothesis».

References

  • Aigner, D., Lovell, C. K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6(1), 21-37.
  • Al-Jarrah, I. M., & Gharaibeh, H. (2009). The efficiency cost of market power in banking: a test of the “quiet life” and related hypotheses in the Jordan’s banking industry. Jordan: Investment Management and Financial Innovations.
  • Asian Development Bank Institute (ADBI) (2014). Connecting Central Asia with Economic Centers. Kasumigaseki, Japan
  • Barra, C., Bimonte, G., & Zotti, R. (2016). On the relationship among efficiency, capitalization and risk: does management matter in local banking market?. Applied Economics, 1-23.
  • Battese, G. E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical economics, 20(2), 325-332.
  • Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking & Finance, 21(6), 849-870.
  • Berger, A. N., & Mester, L. J. (1997). Efficiency and productivity change in the US commercial banking industry: A comparison of the 1980s and 1990s (No. 97-5).
  • Bonin, J. P., Hasan, I., & Wachtel, P. (2005). Privatization matters: Bank efficiency in transition countries. Journal of Banking & Finance, 29(8), 2155-2178.
  • Coleman, B.E., Goffe, V., Perolli, B., Usupova, M., Castillo, L.V., Holzhacker, H., Orlova, N., Sologoub, D., Frewer, G., Hacibedel, B. and Kappeler, A. (2012). Banking in the Eastern neighbours and Central Asia: Challenges and opportunities. Regional Studies and Roundtables, European Investment Bank (EIB).
  • Djalilov, K., & Piesse, J. (2011). Financial development and growth in transition countries: A study of Central Asia. Emerging Markets Finance and Trade, 47(6), 4-23.
  • Djalilov, K., & Piesse, J. (2014). The determinants of bank efficiency in Central Asia. Corporate Ownership and Control, 12(1), 656-670.
  • Dowling, M., & Wignaraja, G. (2006). Mapping Future Prospects to 2015. Central Asia – Caucasus Institute, Silk Road Studies Program, A Joint Transatlantic Research and Policy Center,
  • Di Patti, E. B., & Hardy, D. C. (2005). Financial sector liberalization, bank privatization, and efficiency: Evidence from Pakistan. Journal of Banking & Finance, 29(8), 2381-2406.
  • Fiordelisi, F., Marques-Ibanez, D., & Molyneux, P. (2011). Efficiency and risk in European banking. Journal of Banking & Finance, 35(5), 1315-1326.
  • Fries, S., & Taci, A. (2005). Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries. Journal of Banking & Finance, 29(1), 55-81.
  • Fiorentino, E., Karmann, A., & Koetter, M. (2006). The cost efficiency of German banks: a comparison of SFA and DEA. Available at SSRN 947340.
  • Fleming, A., Bokros, L., & Votava, C. (Eds.). (2001). Financial transition in Europe and Central Asia: challenges of the new decade. World Bank Publications.
  • Hasan, I., & Marton, K. (2003). Development and efficiency of the banking sector in a transitional economy: Hungarian experience. Journal of Banking & Finance, 27(12), 2249-2271.
  • Hahm, H., & Yenier, D. (1998). Financial Sector Reforms ECONOMIC in Mongolia Development. World Bank, EDI Working Papers 18873
  • Hicks, J. (1935): “The Theory of Monopoly.” Econometrica, 3, 1–20.
  • IMF, (2014). The Caucasus and Central Asia: transitioning to emerging markets, Middle East and Central Asia Department, Washington
  • IMF, (2015). Reginal Economic Outlook: Middle East and Central Asia., Washington
  • Khalova, G.O., & Talmy, V. (1999). The Banking System and Monetary Policy in Turkmenistan. Russian & East European Finance and Trade, 35, 5, pp. 45-74
  • Košak, M., & Zajc, P. (2006). Determinants of bank efficiency differences in the new EU member countries. Financial Stability Report, 29.
  • Kraft, E., Hofler, R., & Payne, J. (2006). Privatization, foreign bank entry and bank efficiency in Croatia: a Fourier-flexible function stochastic cost frontier analysis. Applied Economics, 38(17), 2075-2088.
  • Khongorzul, D. (2007). Mongolia and Central Asia in Transition. Ritsemeikan Asia Pacific, 3, pp. 117-149.
  • OECD, (2011). Competitiveness and Private Sector Development Competitiveness and Private Sector Development: Central Asia 2011 Competitiveness Outlook: Competitiveness Outlook, OECD Publishing
  • Pomfret, R. (2009). Central Asia and the Global Economic Crisis. EUCAM policy Brief No. 7, June 2009
  • Pruteanu-Podpiera, A., Weill, L., & Schobert, F. (2007). Market Power and Efficiency in the Czech Banking Sector. CNB.
  • Sealey, C. W., & Lindley, J. T. (1977). Inputs, outputs, and a theory of production and cost at depository financial institutions. The Journal of Finance, 32(4), 1251-1266.
  • Shagdar, E. (2007). Neo-liberal ‘shock therapy’policy during the Mongolian economic transition (No. 0703e). ERINA discussion paper.
  • Uyanik, T., & Segni, C. (2001). Evolution of the Banking Sector in Central Asia. Financial Transition in Europe and Central Asia: Challenges of the New Decade, 97.

VARIATON OF BANKING COST EFFICIENCIES IN CENTRAL ASIA AND MONGOLIA

Year 2016, Issue: 70, 53 - 62, 01.05.2016

Abstract

In this paper we seek to investigate differences between banking cost efficiencies among
commercial banks in Central Asian countries and Mongolia. In analysis different approaches
to liberalization and natural resources exporting characteristics of these countries have been
focused as one of the main determinants for cost efficiency variation. Cost efficiency scores
estimations are based on transcendental logarithmic stochastic frontier panel data model
proposed by Battese & Coelli (1995). Dataset used in the study includes period of 2007-2013.
Results indicate that less liberalization policy in the banking systems cause low intensity of
competition, which in turn characterized by monopolization of banking sectors by large state
owned banks. This tendency results in the low efficiency of commercial banks.
Monopolization along with the relative abundance of financial resources accumulated
through the export of natural resources and constraints on banking activity may lead to a
situation described as “quiet life hypothesis”.

References

  • Aigner, D., Lovell, C. K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6(1), 21-37.
  • Al-Jarrah, I. M., & Gharaibeh, H. (2009). The efficiency cost of market power in banking: a test of the “quiet life” and related hypotheses in the Jordan’s banking industry. Jordan: Investment Management and Financial Innovations.
  • Asian Development Bank Institute (ADBI) (2014). Connecting Central Asia with Economic Centers. Kasumigaseki, Japan
  • Barra, C., Bimonte, G., & Zotti, R. (2016). On the relationship among efficiency, capitalization and risk: does management matter in local banking market?. Applied Economics, 1-23.
  • Battese, G. E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical economics, 20(2), 325-332.
  • Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking & Finance, 21(6), 849-870.
  • Berger, A. N., & Mester, L. J. (1997). Efficiency and productivity change in the US commercial banking industry: A comparison of the 1980s and 1990s (No. 97-5).
  • Bonin, J. P., Hasan, I., & Wachtel, P. (2005). Privatization matters: Bank efficiency in transition countries. Journal of Banking & Finance, 29(8), 2155-2178.
  • Coleman, B.E., Goffe, V., Perolli, B., Usupova, M., Castillo, L.V., Holzhacker, H., Orlova, N., Sologoub, D., Frewer, G., Hacibedel, B. and Kappeler, A. (2012). Banking in the Eastern neighbours and Central Asia: Challenges and opportunities. Regional Studies and Roundtables, European Investment Bank (EIB).
  • Djalilov, K., & Piesse, J. (2011). Financial development and growth in transition countries: A study of Central Asia. Emerging Markets Finance and Trade, 47(6), 4-23.
  • Djalilov, K., & Piesse, J. (2014). The determinants of bank efficiency in Central Asia. Corporate Ownership and Control, 12(1), 656-670.
  • Dowling, M., & Wignaraja, G. (2006). Mapping Future Prospects to 2015. Central Asia – Caucasus Institute, Silk Road Studies Program, A Joint Transatlantic Research and Policy Center,
  • Di Patti, E. B., & Hardy, D. C. (2005). Financial sector liberalization, bank privatization, and efficiency: Evidence from Pakistan. Journal of Banking & Finance, 29(8), 2381-2406.
  • Fiordelisi, F., Marques-Ibanez, D., & Molyneux, P. (2011). Efficiency and risk in European banking. Journal of Banking & Finance, 35(5), 1315-1326.
  • Fries, S., & Taci, A. (2005). Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries. Journal of Banking & Finance, 29(1), 55-81.
  • Fiorentino, E., Karmann, A., & Koetter, M. (2006). The cost efficiency of German banks: a comparison of SFA and DEA. Available at SSRN 947340.
  • Fleming, A., Bokros, L., & Votava, C. (Eds.). (2001). Financial transition in Europe and Central Asia: challenges of the new decade. World Bank Publications.
  • Hasan, I., & Marton, K. (2003). Development and efficiency of the banking sector in a transitional economy: Hungarian experience. Journal of Banking & Finance, 27(12), 2249-2271.
  • Hahm, H., & Yenier, D. (1998). Financial Sector Reforms ECONOMIC in Mongolia Development. World Bank, EDI Working Papers 18873
  • Hicks, J. (1935): “The Theory of Monopoly.” Econometrica, 3, 1–20.
  • IMF, (2014). The Caucasus and Central Asia: transitioning to emerging markets, Middle East and Central Asia Department, Washington
  • IMF, (2015). Reginal Economic Outlook: Middle East and Central Asia., Washington
  • Khalova, G.O., & Talmy, V. (1999). The Banking System and Monetary Policy in Turkmenistan. Russian & East European Finance and Trade, 35, 5, pp. 45-74
  • Košak, M., & Zajc, P. (2006). Determinants of bank efficiency differences in the new EU member countries. Financial Stability Report, 29.
  • Kraft, E., Hofler, R., & Payne, J. (2006). Privatization, foreign bank entry and bank efficiency in Croatia: a Fourier-flexible function stochastic cost frontier analysis. Applied Economics, 38(17), 2075-2088.
  • Khongorzul, D. (2007). Mongolia and Central Asia in Transition. Ritsemeikan Asia Pacific, 3, pp. 117-149.
  • OECD, (2011). Competitiveness and Private Sector Development Competitiveness and Private Sector Development: Central Asia 2011 Competitiveness Outlook: Competitiveness Outlook, OECD Publishing
  • Pomfret, R. (2009). Central Asia and the Global Economic Crisis. EUCAM policy Brief No. 7, June 2009
  • Pruteanu-Podpiera, A., Weill, L., & Schobert, F. (2007). Market Power and Efficiency in the Czech Banking Sector. CNB.
  • Sealey, C. W., & Lindley, J. T. (1977). Inputs, outputs, and a theory of production and cost at depository financial institutions. The Journal of Finance, 32(4), 1251-1266.
  • Shagdar, E. (2007). Neo-liberal ‘shock therapy’policy during the Mongolian economic transition (No. 0703e). ERINA discussion paper.
  • Uyanik, T., & Segni, C. (2001). Evolution of the Banking Sector in Central Asia. Financial Transition in Europe and Central Asia: Challenges of the New Decade, 97.
There are 32 citations in total.

Details

Primary Language English
Other ID JA25ZP75GV
Journal Section Research Article
Authors

Dastan Aseinov

Publication Date May 1, 2016
Submission Date May 1, 2016
Published in Issue Year 2016 Issue: 70

Cite

APA Aseinov, D. (2016). VARIATON OF BANKING COST EFFICIENCIES IN CENTRAL ASIA AND MONGOLIA. Reforma, 2(70), 53-62.