The Ef ciency and Inef ciency of the Banking Sectors: Evidence From Selected ASEAN Banking

This paper examines the cost ef ciency of banks operating in selected countries of the Association of Southeast Asian Nations (ASEAN). We calculate the cost ef ciency base on accounting ef ciency and economic ef ciency using Stochastic Frontier Analysis (SFA) and then classify it as ef cient and not. Further, bank speci c and economic variables are combined to determine the cost ef ciency and the ef ciency category (ef ciency dummy) using linear regression and logistic regression. The results show that bank ef ciency determined by asset size, dummy of economic crisis, interest rate gap, economic growth, in ation, capital, earning assets and loan losses provision. Only capital, earning asset and loan loss provision are consistent for accounting and economic ef ciencies. For economic variable, economic growth and in ation rate are only signi cant in the accounting ef ciency. The result implied that ASEAN banking should continue to consolidate the asset size and the authority should create high economic growth and a low in ation environment to make their banking industry more ef cient.