Bank Efficiency amid Foreign Entry: Evidence from the Central American Region
IMF Working Papers, April 1, 2010
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Bibliographic details
- Authors: Torsten Wezel
- Published: April 1, 2010
- Series: IMF Working Papers
Summary
- This paper investigates the efficiency of domestic and foreign banks in the Central American region during 2002-07.
- Uses two main empirical approaches: Data Envelopment Analysis and Stochastic Frontier Analysis.
- Main finding: foreign banks are not necessarily more efficient than domestic counterparts.
- Regional banks acquired by global banks in a wave of acquisitions during 2005-07 can keep up with local institutions, but their efficiency:
- Dropped during the acquisition year.
- Recovered only slightly thereafter.
- Country-, sector- and firm-specific characteristics have a considerable influence on bank efficiency.
Empirical approaches and scope
- Time coverage: 2002-07.
- Methodologies:
- Data Envelopment Analysis.
- Stochastic Frontier Analysis.
- Geographic focus: Central American region.
- Subject keywords provided: Banking, Commercial banks, Foreign banks, Productivity, Tax expenditures; additional keywords: percentage, takeover, technical efficiency, WP.
Key findings and implications
- Comparative efficiency:
- Foreign banks are not necessarily more efficient than domestic banks.
- Acquired regional banks (acquisitions concentrated in 2005-07) maintained competitiveness with local institutions overall.
- Acquisition-year dynamics:
- Efficiency of acquired banks declines in the acquisition year.
- Post-acquisition recovery is only partial (described as recovering only slightly thereafter).
- Importance of environment:
- Bank efficiency is strongly influenced by country-specific characteristics.
- Sector-specific characteristics also materially affect measured efficiency.
- Firm-specific characteristics play a considerable role in bank efficiency outcomes.