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Cost Efficiency of Banks in Croatia

Author

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  • Huljak Ivan

    (Croatian National Bank, Zagreb, Croatia)

Abstract

Foreign and larger banks in Croatia are generally considered to be more cost efficient compared with domestic and smaller banks. However, those views are often based on data from financial statements that can be misleading due to simultaneous consolidation process on the market and the existence of economies of scale. To contribute to the Croatian banking efficiency literature, we construct a panel of individual bank data for 1994-2014 period and conduct a frontier analysis to calculate bank specific X-efficiency. Our results suggest that efficiency scores depend on the cost definition as domestic and smaller banks are more efficient in managing administrative costs compared with foreign and larger banks but equally efficient in managing total costs. Results indicate that average bank relative efficiency increased on two occasions: one in the late 90s in the period of banking crisis and subsequent “market cleansing” and to a lesser extent in the period marked with financial crisis. Although the differences between bank cost efficiencies seem small, we conclude that the area is worth further research as significant gains in bank earnings could be achieved by increasing efficiency.

Suggested Citation

  • Huljak Ivan, 2015. "Cost Efficiency of Banks in Croatia," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 1(1-2), pages 12-26, December.
  • Handle: RePEc:vrs:crebss:v:1:y:2015:i:1-2:p:12-26:n:2
    DOI: 10.1515/crebss-2016-0002
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    References listed on IDEAS

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    More about this item

    Keywords

    Croatia; banks; cost efficiency;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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