Determinants of efficiency in South East Asian banking

TLDR

Foreign banks are generally more efficient than domestic banks in emerging markets. This paper explores the efficiency of banks in five South East Asian countries using a non‑parametric data envelopment approach and Tobit regression. The authors employ a non‑parametric data envelopment analysis and Tobit regression to assess bank efficiency. Efficiency declined from 1998 to 2004, with post‑1997 crisis restructuring negatively affecting performance; state‑owned banks outperformed local private banks; national banking development positively correlated with efficiency; and results were robust to various input‑output specifications and technological changes.

Abstract

This paper explores the efficiency of banks in five South East Asian countries (Indonesia, Malaysia, the Philippines, Thailand, and Vietnam) using the non-parametric data envelopment approach and Tobit regression. The results indicate that efficiency has significantly declined over the period 1998–2004 indicating that the post-1997 crisis restructuring had a negative influence on bank performance. In line with the established literature on emerging markets, foreign banks appear to be more efficient than the domestic counterparts. However, state-owned banks exhibited greater efficiency than their local private sector peers. Among country-level factors, national banking development shows a strong and positive link with bank efficiency. The results are robust to different assumptions of bank inputs, outputs, technological changes, and national banking convergence.