Comparative Cost Study of Foreign and Thai Domestic Banks 1990-2002: Estimating Cost Functions of the Thai Banking Industry

Abstract

This paper investigates the changing cost performances of foreign and domestic banks in Thailand in relation to increased foreign bank penetration by estimating their cost functions using panel data from 27 banks during 1990-2002. Our empirical analysis suggests that production technologies of foreign bank branches are distinct from those of Thai domestic banks. After the Asian crisis, financial reforms increased operating costs of domestic banks and reduced costs of foreign bank branches. Foreign acquisition of domestic banks after the crisis modernized their business activities, reduced costs associated with fee-based businesses and improved their operational efficiency.Cost function, Foreign Entry, Crisis, Thailand