Productivity Change in European Banks in the Post-Crisis Period

Abstract

The paper analyses the productivity change of a balanced panel of 1915 European banks during the 2013–2018 post-crisis period. To study productivity changes, the paper applies the non-parametric output-oriented Data Envelopment Analysis (DEA) approach and the Malmquist productivity index (MPI). The total productivity change estimated by the MPI is further decomposed into technical efficiency change and technological change. The overall MPI estimates show a modest increase in the productivity of banks in half of the EU countries. Further decomposition of the MPI indicates that the productivity growth was mainly a result of technological improvement, which was particularly high among the new EU member states, whereas there was a significant drop in technical efficiency. The productivity growth was higher among banks in the non-euro area and among savings banks. The practical implications drawn from the paper are that European banks should further develop their business models to rationalize the costs and increase their operational efficiency and stimulate the adoption of fintech solutions and technological development so as to enhance their productivity.

Keywords

• productivity change
• Malmquist index
• data envelopment analysis
• European banking system