Efficiency of Banks in Regions at Different Stage of European Integration Process

Abstract

This paper estimates commercial banks’ efficiency in three relatively homogenous groups of countries with different level of economic development and different involvement in the process of European integration. The first group consists of Portugal and Greece, the second group is represented by the Czech Republic, Hungary, Poland and Slovakia and the third group includes Bulgaria and Romania. The paper aims to reveal whether the differences among regions and countries in the stage of European integration and economic situation are visible also in banking efficiency. Thus we test the hypothesis that the higher degree of European economic integration and economic development goes hand in hand with higher baking efficiency. Employing Data Envelopment Analysis on unconsolidated data we evaluate efficiency of banks in a core of their business - financial intermediation - in 2002-2003. Results suggest that differences in banking efficiency exist among analyzed regions and the hierarchy corresponds with the hierarchy of regions and countries in terms of economic development and degree of integration. Thus, low level of financial intermediation efficiency in Central and Eastern European countries may undermine their effort to boost the economic growth and catch-up the forerunning countries. The importance of the efficiency gap is underscored by the fact that only some of the catching-up countries recorded higher growth of efficiency than the forerunners.efficiency, banks, Data Envelopment Analysis, integration