An empirical analysis of Iran's banking performance
Purpose - The purpose of this paper is to investigate the efficiency and productivity growth of the Iranian banking industry between 2003 and 2008, encompassing pre- and post-2005-reform years. Design/methodology/approach - The study uses a new decomposition of the Hicks-Moorsteen total factor productivity index developed by O'Donnell to analyse efficiency and productivity changes in a banking context. The advantage of this approach over the popular constant-returns-to-scale Malmquist productivity index is that it is free from any assumptions concerning firms' optimising behaviour, the structure of markets, or returns to scale. The paper assumes that the production technology exhibits variable returns to scale. Findings - The banking industry's technical efficiency level - which had improved between 2003 and 2006 - deteriorated after regulatory changes were introduced in Iran. The results obtained also show that during 2006-2007, the industry's total factor productivity increased by 32 per cent. However, the industry experienced its highest negative scale efficiency rate of 38 per cent (ΔROSE = 0.62) and its highest negative efficiency growth of 43 per cent (ΔEff = 0.57) during this period. The industry also witnessed a strong drop in productivity in 2007-2008. Overall, changes in the production possibility set and scale-efficiency changes exerted dominant effects on productivity changes. Originality/value - This study is the first to use a comprehensive decomposition of the Hicks-Moorsteen TFP index to analyse efficiency and productivity changes in a banking context.
Does the interest rate for business loans respond asymmetrically to changes in the cash rate?
This article examines the dynamic relationship between the Reserve Bank of Australia's (RBA's) cash rate and the variable interest rate for lending to small businesses. The relationship is evaluated via an asymmetric GARCH model using monthly data spanning from August 1990 to October 2012. Our results show that a 1 percentage point increase in the cash rate results in an instantaneous 1.086 percentage point rise in the variable rate for small businesses, whereas an equivalent 1 percentage point cut only leads to a 0.862 percentage point fall with a delay of up to 2 months. This outcome has obvious implications for the RBA's monetary policy transmission mechanism and the effectiveness of the expansionary policy versus contractionary policy.
Downward stickiness of interest rates in the Australian credit card market
This paper measures the full extent of downward stickiness in credit card interest rates by testing for the amount and adjustment asymmetries. We found that lenders behave asymmetrically in response to changes in the Reserve Bank of Australia's (RBA) cash rate. The RBA's rate rises are passed on to borrowers much faster than rate cuts and the aggregate credit card interest rate showed a very resilient degree of downward rigidity. Overall, based on the estimated short-run dynamic model, banks immediately pass on 112% of any RBA's rate rises, but only 53.7% of any rate cut. In other words, the short-run effects of rate cuts were not only less than half of the rate rises but also were delayed on average by two months. As far as changes in the credit card interest rate are concerned, an expansionary monetary policy is thus less effective than a contractionary policy.
Analysing Productivity Changes Using the Bootstrapped Malmquist Approach: The Case of the Iranian Banking Industry
This study employs various bootstrapped Malmquist indices and efficiency scores to investigate the effects of government regulation on the performance of the Iranian banking industry over the period 2003-2008. An alternative decomposition of the Malmquist index, introduced by Simar and Wilson (1998a), is also applied to further decompose technical changes into pure technical change and changes in scale efficiency. A combination of these approaches facilitates a robust and comprehensive analysis of Iranian banking industry performance. While this approach is more appropriate than the traditional Malmquist approach for banking efficiency studies, it has not previously been applied to any developing country's banking system. The results show that although, in general, the regulatory changes had different effects on individual banks, the efficiency and productivity of the overall industry declined after regulation. We also find that productivity had positive growth before regulation, mainly due to improvements in pure technology, and that government ownership had an adverse impact on the efficiency level of state-owned banks. The bootstrap approach demonstrates that the majority of estimates obtained in this study are statistically significant.
Analysing banks' intermediation and operational performance using the Hicks-Moorsteen TFP index: The case of Iran
In order to analyse the impact of policy reforms on the performance of the banking sector in Iran we present a decomposition of the Hicks-Moorsteen Total Factor Productivity (TFP). This entails a comparison of both the intermediate and operating performances of different types of banks in the pre- and post-reform eras. Our results show that under the intermediation approach, state-owned banks (public banks) were considerably more efficient than private banks in the post-regulation period. In contrast, under the operating approach, private banks were fully technically efficient and mix efficient in both pre and post-reform eras. This paper highlights the importance of analysing performance from multiple perspectives. The findings reflect public banks' mission to maximise loans to target groups while private banks are motivated more by financial profit.
Examining the nature of the relationship between Tapis crude oil and Singapore petrol prices
Fuel prices play a crucial role in the supply side of many economies across the globe. Hence, it is important to ensure that fuel pricing is efficient and free from any asymmetric behaviour. This paper examines the long- and short-run relationships between the price of unleaded petrol in Singapore (Mogas95) and the price of Tapis crude oil using 4,929 daily observations (4 June 1993-25 April 2012). As expected, we found that these two key energy indicators are cointegrated. We then developed a modelling framework that allowed us to test for adjustment asymmetries that distinguish between the size and sign of disequilibria, proxied by three different error correction terms. We found no significant evidence of any asymmetric pricing behaviour and market inefficiency. However, our results revealed a significant weekly cyclical pattern, with petrol being more expensive on Thursdays/Fridays than the rest of the week.