Determining the Convergence Speed of Cost Efficiency in the Iranian Banking Industry

Abstract

Banks as economic firms try to provide banking services in low cost. The efficiency of banking system and its convergence among the Iranian banks is a top priority for planners and decision-makers. In this research, the data of 9 Iranian banks (6 commercial and 3 specialized) during 2001-2012 period are utilized according to intermediate approach and Stochastic Frontier Analysis (SFA) within a translog cost function and Model I of Battese and Colli (1992). The results show that average efficiency for commercial and specialized banks has been 78.95% and 87.58%, respectively, which imply that the average efficiency of specialized banks is more than that of commercial banks. In addition, the convergence process has been studied as a result of economic growth models. The speed of efficiency convergence has been estimated by -571% in absolute model, and -576% in conditional model, respectively. The average efficiency growth is decreasing and the efficiency adjustment speed is convergent.

Keywords

• efficiency
• stochastic frontier analysis (sfa)
• bank
• battese and colli model
• sigma convergence model
• beta convergence model