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BANKING EFFICIENCY MEASUREMENT - EVIDENCE FROM ROMANIAN SYSTEMIC BANKS

B. I. Alina
Thursday 8 November 2018 by Libadmin2018

ABSTRACT

The topic of efficiency in the field of banking activity is widely debated because it is perceived as being a leading factor, with impact on banks’ financial performance and soundness. Paper’s theme is in line with current concerns expressed by European and national regulators and supervisory bodies, which are strengthening supervisory practices for best assessing the risk profile and potential exposure to shocks of large, systemic banks. Paper’s focus is on a sample of representative Romanian banks, which are classified by the National Bank of Romania as domestic systemically important banks. The research goal is to examine to what extent Romanian systemic banks efficiently fulfilled their basic financial intermediation function in the last fourteen years. Efficiency had been measured by relying on a well known non-parametric method called Data Envelopment Analysis, under a financial intermediation approach, with an output oriented model and variable returns of scale. The estimated efficiency scores show that one systemic bank had never been placed on the efficiency frontier, as it persistently failed to maximize the amount of output variables. The remaining banks in the sample positioned themselves on the frontier in 3 out of 14 years. However, their individual efficiency scores recorded an increase one year from another, at end-2016 ranging in the proximity of the efficiency frontier. The years witnessing most cases of efficiency are 2012, 2013 and 2016. Another result of the analysis is related to identifying systemic banks’ scale efficiency. The years 2010, 2011 and 2014 depicted decreasing returns to scale for half of the systemic banks in the sample, signaling that these banks are too large for obtaining advantages from scale. A single bank depicts constant returns to scale in each and every year considered, meaning that it is scale efficient.

Keywords: domestic systemic banks, technical efficiency, scale efficiency, data envelopment analysis


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