14 research outputs found
Productivity Changes and Risk Management in Indonesian Banking: An Application of a New Approach to Constructing Malmquist Indices
In this study, we utilise a new, non-parametric efficiency measurement approach which combines the semi-oriented radial measure data envelopment analysis (SORM-SBM-DEA) approach for dealing with negative data (Emrouznejad et al., 2010) with the slacks-based efficiency measures of Tone (2001, 2002) to analyse productivity changes for Indonesian banks over the period Quarter I 2003 to Quarter II 2007. Having constructed the Malmquist indices, using data provided by Bank Indonesia (the Indonesian central bank), for the banking industry and different bank types (i.e., listed and Islamic) and groupings, we then decomposed the industryâs Malmquist into its technical efficiency change and frontier shift components. Finally, we analysed the banksâ risk management performance, using Simar and Wilsonâs (2007) truncated regression approach, before assessing its impact on productivity growth. The first part of the Malmquist analysis showed that average productivity changes for the Indonesian banking industry tended to be driven, over the sample period, by technological progress rather than by frontier shift, although a relatively stable pattern was exhibited for most of the period. However, at the beginning of the considered period, state-owned and foreign banks, as well as Islamic banks, exhibited volatile productivity movements, mainly caused by shifts in the technological frontier. With respect to the risk management analysis, most of the balance sheet variables were shown to have had the expected impact on risk management efficiency. While the risk management decomposition of technical efficiency change and frontier risk components demonstrated that, by the end of the sample period, the change in risk management efficiency and risk management effects had the same dynamic pattern, resulting in the analogous dynamics for technical efficiency changes. Therefore, a strategy based on the gradual adoption of newer technology, with a particular focus on internal risk management enhancement, seems to offer the highest potential for boosting the productivity of the financial intermediary operations of Indonesian banks.Indonesian Finance and Banking; Productivity; Efficiency.
Banking Efficiency and Stock Market Performance: An Analysis of Listed Indonesian Banks
This paper examines the monthly efficiency and productivity of listed Indonesian banks and their market performance through the prism of two modelling techniques, efficiency and super-efficiency, over the period January 2006 to July 2007. Within this research strategy we employ Toneâs (2001) non-parametric, Slacks-Based Model (SBM) and Toneâs (2002) super-efficiency SBM combining them with recent bootstrapping techniques, namely the non-parametric truncated regression analysis suggested by Simar and Wilson (2007). In the case of the SBM efficiency scores, the Simar and Wilson methodology was adapted to two truncations, whereas in the super-efficiency framework the original technique was utilised. As suggested by neo-classical theory, we find that the stock market values banks in accordance with their performance. Moreover, it is found that the JCI index of the Indonesian Stock Exchange is positively related to bank efficiency. Another interesting finding is that the coefficient for the share of foreign ownership is negative and statistically significant in the super-efficiency modelling. This suggests that Indonesian banks with foreign ownership tend to be less efficient than their domestic counterparts. Finally, Malmquist productivity results suggest that, over the studyâs horizon, the sample banks displayed volatile productivity patterns in their profit-generating operations.Indonesian Banking, Emerging Markets, Productivity, Efficiency.
A New Approach to Dealing With Negative Numbers in Efficiency Analysis: An Application to the Indonesian Banking Sector
In one of the first stand-alone studies covering the whole of the Indonesian banking industry, and utilising a unique dataset provided by the Indonesian central bank, this paper analyses the levels of intermediation-based efficiency obtaining during the period 2003-2007. Using a new approach (i.e., semi-oriented radial measure Data Envelopment Analysis, or âSORM DEAâ) to handling negative numbers (Emrouznejad et al., 2010) and combining it with Toneâs (2001) slacks-based model (SBM) to form an input-oriented, non-parametric SORM SBM model, we firstly estimate the relative average efficiencies of Indonesian banks, both overall, by group, as determined by their ownership structure, and by status (âlistedâ/âIslamicâ). For robustness, a range-directional (RD) model suggested by Silva Portela et al. (2004) was also employed to handle the negative numbers. In the second part of the analysis, we adopt Simar and Wilsonâs (2007) bootstrapping methodology to formally test for the impact of size, ownership structure and status on Indonesian bank efficiency. In addition, we formally test the two models most widely suggested in the literature for controlling for bank risk â namely, those involving the inclusion of provisions for loan losses and equity capital respectively as inputs â to check the robustness of the results to the choice of risk variable. The results demonstrate a high degree of sensitivity of the average bank efficiency scores to the choice of methodology for handling negative numbers â with the RD model consistently delivering efficiency scores some 14% on average above those from the SORM SBM model â and to the choice of risk control variable under the RD model, but only a limited sensitivity to the choice of risk control variable under the SORM SBM model. With respect to group rankings, most model combinations find the âstate-ownedâ group to be the most efficient, with average overall efficiency levels ranging between 64% and 97%; while all model combinations find the âregional government-ownedâ group to be the least efficient, with average overall efficiency levels ranging between 41% and 64%. As for the impact of bank âstatusâ on the efficiency scores, both the Islamic banks and the listed banks perform better than the industry average in the majority of model combinations. Finally, the results for the impact of scale on the efficiency scores are ambiguous. Under the RD model, and irrespective of the choice of risk control variable, size is very important in determining intermediation-based efficiency. Under the SORM SBM model, however, large banksâ performance is not significantly different from that of the medium-sized banks when equity capital is used as the risk control variable, although the medium-sized banks do out-perform small banks. Moreover, when loan loss provisions are used as the risk control variable, medium-sized banks are shown to significantly out-perform both large and small banks, with the large banks being the least efficient.Indonesian Finance and Banking; Efficiency.
Productivity changes and risk management in Indonesian banking: an application of a new approach to constructing Malmquist indices
In this study, we utilise a new, non-parametric efficiency measurement approach which combines the semi-oriented radial measure data envelopment analysis (SORM-SBM-DEA) approach for dealing with negative data (Emrouznejad et al., 2010) with the slacks-based efficiency measures of Tone (2001, 2002) to analyse productivity changes for Indonesian banks over the period Quarter I 2003 to Quarter II 2007. Having constructed the Malmquist indices, using data provided by Bank Indonesia (the Indonesian central bank), for the banking industry and different bank types (i.e., listed and Islamic) and groupings, we then decomposed the industryâs Malmquist into its technical efficiency change and frontier shift components. Finally, we analysed the banksâ risk management performance, using Simar and Wilsonâs (2007) truncated regression approach, before assessing its impact on productivity growth. The first part of the Malmquist analysis showed that average productivity changes for the Indonesian banking industry tended to be driven, over the sample period, by technological progress rather than by frontier shift, although a relatively stable pattern was exhibited for most of the period. However, at the beginning of the considered period, state-owned and foreign banks, as well as Islamic banks, exhibited volatile productivity movements, mainly caused by shifts in the technological frontier. With respect to the risk management analysis, most of the balance sheet variables were shown to have had the expected impact on risk management efficiency. While the risk management decomposition of technical efficiency change and frontier risk components demonstrated that, by the end of the sample period, the change in risk management efficiency and risk management effects had the same dynamic pattern, resulting in the analogous dynamics for technical efficiency changes. Therefore, a strategy based on the gradual adoption of newer technology, with a particular focus on internal risk management enhancement, seems to offer the highest potential for boosting the productivity of the financial intermediary operations of Indonesian banks
Banking efficiency and stock market performance: an analysis of listed Indonesian banks
This paper examines the monthly efficiency and productivity of listed Indonesian banks and their market performance through the prism of two modelling techniques, efficiency and super-efficiency, over the period January 2006 to July 2007. Within this research strategy we employ Toneâs (2001) non-parametric, Slacks-Based Model (SBM) and Toneâs (2002) super-efficiency SBM combining them with recent bootstrapping techniques, namely the non-parametric truncated regression analysis suggested by Simar and Wilson (2007). In the case of the SBM efficiency scores, the Simar and Wilson methodology was adapted to two truncations, whereas in the super-efficiency framework the original technique was utilised. As suggested by neo-classical theory, we find that the stock market values banks in accordance with their performance. Moreover, it is found that the JCI index of the Indonesian Stock Exchange is positively related to bank efficiency. Another interesting finding is that the coefficient for the share of foreign ownership is negative and statistically significant in the super-efficiency modelling. This suggests that Indonesian banks with foreign ownership tend to be less efficient than their domestic counterparts. Finally, Malmquist productivity results suggest that, over the studyâs horizon, the sample banks displayed volatile productivity patterns in their profit-generating operations
Productivity changes in Indonesian banking: application of a new approach to estimating Malmquist indices
In this study, we utilise a new, non-parametric efficiency measurement approach which combines the semi-oriented radial measure data envelopment analysis (SORM DEA) approach for dealing with negative data (Emrouznejad et al., 2010) with the slacks-based efficiency measure of Tone (2001, 2002), to analyse efficiency and productivity changes for Indonesian banks over the period Quarter I 2003 to Quarter IV 2007. Using quarterly data based on supervisory data provided by Bank Indonesia we find that, under the intermediation-based approach to efficiency estimation, average Indonesian bank efficiency somewhat declined during the sample period, from 73% to 63%, reaching a nadir of 53% at end-June 2007. With respect to the bank groupings, Indonesian âstate-ownedâ banks were the most efficient at the beginning of the sample period (with average efficiency of 92%) but, by the end of the sample period, they had been usurped by the âjoint-ventureâ and ânon-foreign exchange privateâ banks. The regional government-owned banks were found to be the least efficient throughout. Finally, Malmquist results for the Indonesian banking industry suggest that the main driver of productivity growth is technological progress. A strategy based on the gradual adoption of newer technology, according to our results, thus seems to have the highest potential for boosting the productivity of the financial intermediary operations of Indonesian banks
A new approach to dealing with negative numbers in efficiency analysis: an application to the Indonesian banking sector
In one of the first stand-alone studies covering the whole of the Indonesian banking industry, and utilising a unique dataset provided by the Indonesian central bank, this paper analyses the levels of intermediation-based efficiency obtaining during the period 2003-2007. Using a new approach (i.e., semi-oriented radial measure Data Envelopment Analysis, or âSORM DEAâ) to handling negative numbers (Emrouznejad et al., 2010) and combining it with Toneâs (2001) slacks-based model (SBM) to form an input-oriented, non-parametric SORM SBM model, we firstly estimate the relative average efficiencies of Indonesian banks, both overall, by group, as determined by their ownership structure, and by status (âlistedâ/âIslamicâ). For robustness, a range-directional (RD) model suggested by Silva Portela et al. (2004) was also employed to handle the negative numbers. In the second part of the analysis, we adopt Simar and Wilsonâs (2007) bootstrapping methodology to formally test for the impact of size, ownership structure and status on Indonesian bank efficiency. In addition, we formally test the two models most widely suggested in the literature for controlling for bank risk â namely, those involving the inclusion of provisions for loan losses and equity capital respectively as inputs â to check the robustness of the results to the choice of risk variable. The results demonstrate a high degree of sensitivity of the average bank efficiency scores to the choice of methodology for handling negative numbers â with the RD model consistently delivering efficiency scores some 14% on average above those from the SORM SBM model â and to the choice of risk control variable under the RD model, but only a limited sensitivity to the choice of risk control variable under the SORM SBM model. With respect to group rankings, most model combinations find the âstate-ownedâ group to be the most efficient, with average overall efficiency levels ranging between 64% and 97%; while all model combinations find the âregional government-ownedâ group to be the least efficient, with average overall efficiency levels ranging between 41% and 64%. As for the impact of bank âstatusâ on the efficiency scores, both the Islamic banks and the listed banks perform better than the industry average in the majority of model combinations. Finally, the results for the impact of scale on the efficiency scores are ambiguous. Under the RD model, and irrespective of the choice of risk control variable, size is very important in determining intermediation-based efficiency. Under the SORM SBM model, however, large banksâ performance is not significantly different from that of the medium-sized banks when equity capital is used as the risk control variable, although the medium-sized banks do out-perform small banks. Moreover, when loan loss provisions are used as the risk control variable, medium-sized banks are shown to significantly out-perform both large and small banks, with the large banks being the least efficient
AnĂĄlise EnvoltĂłria de Dados e Ăndice Malmquist em Estruturas de Rede: Um Modelo Tobit Truncado Aplicado aos Condicionantes da EficiĂȘncia BancĂĄria Brasileira.
Os bancos desempenham um importante papel para o desenvolvimento dos paĂses, isto pois, em suas atividades operacionais, eles alocam recursos para os setores produtivos. Justamente por serem instituiçÔes estratĂ©gicas, estudos relacionados Ă eficiĂȘncia deste setor sĂŁo de crucial importĂąncia. O presente trabalho busca analisar a eficiĂȘncia dos 30 maiores bancos brasileiros, durante o perĂodo de 2012-2014, por meio de um processo de dois estĂĄgios. No primeiro estĂĄgio, o modelo de eficiĂȘncia DEA em estruturas de rede foi adotado para mensurar o desempenho dos bancos, tanto a partir de uma abordagem de intermediação financeira, quanto por uma abordagem de rentabilidade, simultaneamente. JĂĄ no segundo estĂĄgio, utilizando esses escores de eficiĂȘncia calculados como variĂĄveis dependentes, uma regressĂŁo Tobit foi utilizada para analisar como o ambiente financeiro pode explicar os nĂveis de eficiĂȘncia auferidos pelos bancos. Em associação, o Ăndice Malmquist foi mensurado para ambas as abordagens com a finalidade de determinar as alteraçÔes de desempenho no perĂodo considerado. Os resultados sugerem que os bancos brasileiros possuem maiores dificuldades nas atividades de intermediação financeira, em comparação com os nĂveis de rentabilidade alcançados, entretanto, seus nĂveis de produtividade aumentaram no triĂȘnio. No que se refere ao ambiente financeiro, constatou-se presença de deseconomias de escala, e escopo, alĂ©m de uma situação de maior solvĂȘncia dos bancos pĂșblicos
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The impact of regulatory reforms on cost efficiency, ownership and competition in the Turkish commercial banking sector
The Turkish government commenced banking deregulation reforms with the objective of
fostering competition in the early 1980s. Yet several financial crises emerged in the
aftermath of the reforms, indicating structural weaknesses. The financial crisis in 2001 has
been a cornerstone of the regulatory framework, changing the policy focus from
deregulation to stability. This study aims to investigate the evolution of the regulatory
reforms on cost structure characteristics and on ownership. It also evaluates the impact of
reforms on the dynamic of competition in the loan market. Changes in accounting rules
and introduction of re-regulation policies took place as of 2002, resulting in previous
literature focus on either side of the change. This thesis builds a homogenous data set to
allow for accounting changes and to look at the whole reform process, enabling it to draw
more robust comparisons and policy implications. It accordingly uses a comprehensive and
unique panel dataset of 51 banks for the period 1988-2016, capturing the pre- and postreform periods.
To examine the impact of reforms on cost efficiency and ownership, a stochastic cost
frontier with inefficiency determinants is estimated. The results suggest that pure cost
technology trend worsens over time, confirming that banks have yet to adjust to the new
regulatory environment. The trend in cost efficiency shows a non-monotonic pattern over
time, implying that efficiency gains have been unsustainable. The results also suggest that
reforms influence the ownership-cost efficiency relationship. Specifically, domestic private
and foreign banks appear to benefit from an environment with operational freedom and
functional autonomy during the pre-reform period. The implementation of tighter
prudential norms in the aftermath of the 2001 crisis seems to have had adverse impacts for
all ownerships at the early stages. Yet state banks and domestic private banks in particular
are initially better equipped to adapt to the new regulatory environment compared to
foreign banks. The results of the persistence of profits (POP) model indicate that the
reforms had no discernible effect on the competitive conditions of the lending market.
Furthermore, the foreign bank entry also did not improve competition. The complementary
analysis undertaken using the Boone indicator (BI) suggests that competitive conditions
are stronger in the early stages of prudential reforms yet it significantly worsens after 2008,
implying that once again the reform package does not seem to have had the desired
competition-inducing effect