Sources of Productivity Changes of Commercial Banks in Developing Economy: Evidence from Malaysia, 1998-2003

Applying a non-parametric Malmquist Productivity Index (MPI) method, this paper attempts to investigate the productivity changes of Malaysian banks during the post crisis period of 1998-2003. Our results suggest that: (1) Malaysian banking sector have exhibit productivity regress of 6.3% and that the productivity regressed during the period of study was largely attributed to Technological (6.1%) rather than Technical Efficiency (0.2%) regress. (2) Malaysian banks regardless of size have exhibit productivity regress ranging from 1.5% to as high as 10.0% and (3) The smallest bank in our sample is too small to reap the benefits of economies of scale, while the largest bank in our sample, is too large to be scale efficient.Finance and Banking, Productivity Change, Malmquist Productivity Index

The evolution of Malaysian banking sector's efficiency during financial duress: consequences, concerns, and policy implications

By employing the non-stochastic data envelopment analysis (DEA) method, the present paper provides empirical evidence on the efficiency of the Malaysian banking sector around the Asian financial crisis. The empirical findings suggest that the foreign banks (FB) have exhibited higher technical efficiency (TE) compared to their domestic bank counterparts. However, the results suggest that the FB were severely affected by the Asian financial crisis, implying that the FB were not insulated from unexpected events like the Asian financial crisis of 1997

An exploration into the home field, global advantage and liability of unfamiliarness hypotheses in multinational banking

AbstractThis paper seeks to expand the efficiency paradigm of the eclectic theory in multinational banking within the context of a developing country banking sector. We employ the Data Envelopment Analysis (DEA) method to examine the efficiency of multinational banks operating in the Malaysian banking sector from 1995 to 2007. We then employ the panel regression analysis to examine the impact of origins on bank efficiency. We find foreign banks from North America to be the most efficient banking group, providing support to the ‘limited form’ of the global advantage hypothesis. On the other hand, we do not find evidence on both the liability of unfamiliarness and home field advantage hypotheses

Financial Depression and the Profitability of the Banking Sector of the Republic of Korea: Panel Evidence on Bank Specific and Macroeconomic Determinants

The paper provides new empirical evidence on factors that determine the profitability of the banking sector of the Republic of Korea. The empirical findings indicate that the banks of the Republic of Korea with high capitalization levels tend to have higher profitability levels. However, the impact of credit is consistently negative under both controlled and uncontrolled macroeconomic and financial conditions. Meanwhile, the effect of the business cycle towards the profitability of banks are mixed. On the one hand, inflation displays a pro-cyclical impact, while gross domestic product (GDP) has a counter-cyclical influence on the banks’ profitability. The findings also indicate that the industry concentration of the national banking system has a positive as well as a significant effect on the banks. The study is based on data from the period 1994-2008. This period is broken down into 4 sub-periods, the tranquil period before the Asian financial crisis (1994-1996), the Asian financial crisis (1997-1998), the tranquil period between the Asian financial crisis and recent global financial crisis (1999-2008) and recent global crisis (2008). The impacts of both the Asian financial crisis and the recent global financial crisis are negative, while the banks have been relatively more profitable during both the tranquil periods

Determinants of bank efficiency during unstable macroeconomic environment: empirical evidence from Malaysia

The present study investigates for the first time the efficiency of Malaysian banking sector around the Asian financial crisis 1997. The efficiency estimates of individual banks are evaluated by using the Data Envelopment Analysis (DEA) approach. To examine the robustness of the estimated efficiency scores under various alternatives and to differentiate how efficiency scores vary with changes in inputs and outputs, the present study focuses on three major approaches viz., intermediation approach, value added approach, and operating approach. The analysis further links the variation in calculated efficiencies to a set of explanatory variables, i.e. bank size, profitability, and ownership. The empirical findings clearly bring forth the high degree of inefficiency in the Malaysian banking sector, particularly a year after the East Asian crisis. The results suggest that the decline in technical efficiency is more abrupt under the intermediation approach relative to the value added approach and operating approach. The regression results focusing on bank efficiency and other bank specific traits suggest that efficiency is negatively related to expense preference behavior and economic conditions, while bank efficiency is positively related to loans intensity

Bank Efficiency and Share Prices in China: Empirical Evidence from a Three-Stage Banking Model

This paper examines for the first time the relationship between China banks’ efficiency and its share price performance. Our analysis consists of three parts. First, we calculate the annual share price returns of the banks for each year between 1997 and 2006. Then we employ Data Envelopment Analysis (DEA) Window Analysis method, first proposed by Charnes et al. (1985) to estimate the efficiency of the banks. Finally, we estimate the annual share price returns over the change in efficiency, while controlling for other bank specific traits. The empirical findings suggest that large China banks have exhibited higher technical and pure technical efficiency levels compared to their small and medium sized bank counterparts, while the medium sized banks have exhibited higher scale efficiency. The relationship between China banks’ efficiency and share price performance suggest that bank efficiency estimates derived from the DEA Window Analysis method contributes significant information towards share price returns beyond that provided by financial information.Bank Efficiency, Share Prices, DEA Window Analysis, China

Consolidation and efficiency: Evidence from non-bank financial institutions in Malaysia

This paper investigates the efficiency changes of finance and merchant banking institutions in Malaysia, during and post-consolidation periods by applying the non-parametric Data Envelopment Analysis (DEA). The evidence suggests that pure technical efficiency is more related to overall efficiency than scale efficiency. On average, 28.7% of finance and merchant banking institutions are operating at CRS, while the majority are scale inefficient. Our results from the Tobit regression analysis further confirmed that the level of equity capital is positively related with the level of efficiency gain. Financial institutions with higher ratio of loans to assets are related to higher level of efficiency. This might reflect the degree of market power exists in the loan markets compared to the other product markets with institutions developed their strategic niche within the market.Non-Bank Financial Institutions, Data Envelopment Analysis (DEA), Malaysia, Tobit

Market Structure and Competition in Emerging Market: Evidence from Malaysian Islamic Banking Industry

This paper investigates the market structure of Islamic banking industry in Malaysia during 2001-2005 and evaluates the degree of competition using the H-statistic by Panzar and Rosse (1987). The estimated H-statistics for the whole sample periods are positive ranging from 0.38 to 0.62 and the Wald test for the market structure of monopoly or perfect competition is rejected implying that the Islamic banks in Malaysia earned their revenue in the condition of monopolistic competition.Competition; Panzar-Rosse model; Islamic Bank; Malaysia; Market structure

Antecedents of total factor productivity of Malaysian banks: evidence from semi-parametric Malmquist Productivity Index method

The paper employs the semi-parametric Malmquist Productivity Index (MPI) method to assess the impact of technological change on the obtained total factor productivity of Malaysian banks during the period 1998 –2008. The preferred methodology provides bias-corrected estimates of total factor productivity change along with the information on efforts to catch up to the frontier (efficiency change) from shifts in the frontier (technological change). During the period under study, the empirical findings indicate that the Malaysian banking sector has exhibited productivity progress mainly attributed to technological progress. We also find that shift in the frontier (technological change) positively influence both domestic and foreign banks total factor productivity change

Bank Ownership, Characteristics and Performance: A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia

The paper investigates the performance of Malaysian Islamic banking sector during the period of 2001-2005. Several efficiency estimates of individual banks are evaluated using non-parametric Data Envelopment Analysis (DEA). Two different approaches have been employed to differentiate how efficiency scores vary with changes in inputs and outputs. The analysis links the variation in calculated efficiencies to a set of variables, i.e. bank size, ownership, capital, non-performing loans and management quality. The findings suggest that during the period of study, scale inefficiency dominates pure technical inefficiency in the Malaysian Islamic banking sector. We found that foreign banks have exhibited higher technical efficiency compared to its domestic peers. The second stage empirical results based on multivariate Tobit model also suggest that technically more efficient banks are larger, have greater loans intensity, and on average have less non-performing loans.Islamic Banks, Data Envelopment Analysis (DEA), Tobit Regression Analysis