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Efficiency of the Albanian banking system: Traditional approach and Stochastic Frontier Analysis

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  • Suela Kristo

    (Department of Economics, Faculty of Economy, Tirana University, Rr. Elbasanit, Tirana, Albania)

Abstract

Efficiency issues become even more sensitive for post-communist European countries and for Albania as well, as their economies have created relatively new financial systems being currently of little experience, moreover when they become part of EU. Their survival requires them among others, to be as efficient as possible. The paper focuses on the dynamics of bank efficiency banking system as a whole and for each of the banks in particular. Firstly, the analysis is done through traditional indicators. These indicators clearly show a poor performance and decreased efficiency of Albanian banking system after year 2007. Then, is estimated the cost efficiency through Stochastic Frontier Approach (SFA). This efficiency estimation captures essentially the deviation that a bank has from the theoretical best-practice bank. Results show that in particular, the largest banks (which have the largest market share G3 group) seem to be more efficient than the smaller banks. However, the differences that they have on each other are much smaller than in the case of traditional indicators. Moreover, it is not clear the relationship between ROA or size of the bank with the cost efficiency.

Suggested Citation

  • Suela Kristo, 2013. "Efficiency of the Albanian banking system: Traditional approach and Stochastic Frontier Analysis," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 6(3), pages 61-78, December.
    • Handle: RePEc:tei:journl:v:6:y:2013:i:3:p:61-78
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    References listed on IDEAS

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    Cited by:

    1. Vasiliki Makri & Konstantinos Papadatos, 2014. "How accounting information and macroeconomic environment determine credit risk? Evidence from Greece," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 7(1), pages 129-143, April.
    2. Iulia Andreea Bucur & Simona Elena Dragomirescu, 2014. "The Influence Of Macroeconomic Conditions On Credit Risk: Case Of Romanian Banking System," Studies and Scientific Researches. Economics Edition, "Vasile Alecsandri" University of Bacau, Faculty of Economic Sciences, issue 19.
    3. Sanderson Abel & Alex Bara & Pierre Le Roux, 2019. "Evaluating Bank Cost Efficiency Using Stochastic Frontier Analysis," Journal of Economics and Behavioral Studies, AMH International, vol. 11(3), pages 48-57.

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    More about this item

    Keywords

    bank efficiency; Albanian banking system; SFA;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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