The efficiency of emerging Europe’s banking sector before and after the recent economic crisis

Abstract

This paper provides estimates for the relative efficiency of banks in emerging Europe before the recent boom, just before the crisis, and right after the crisis, using a Data Envelopment Analysis (DEA). The results suggest that DEA efficiency scores before the recent crisis were strongly linked to the host country’s level of development; were higher for foreign-owned banks; but did not stand out for bank groups with a presence in more than one country. The results also suggest that bank efficiency increased during the precrisis boom, but fell during the crisis. Finally, foreign-owned banks in emerging Europe seem to be less efficient than their mother banks, suggesting that although they may bring some efficiency benefits to their host country, they are highly affected by the local business and operational environment.

Keywords

• emerging Europe
• macro-financial links
• bank sector efficiency