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.
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.
Long- and Short-Run Determinants of the Demand for Money in the Asian-Pacific Countries: An Empirical Panel Investigation
This paper examines the long- and short-run determinants of the demand for money in six countries in the Asian-Pacific region using panel data (1975- 2002). Various country-specific coefficients are allowed to capture inter-country heterogeneities. Consistent with theoretical postulates, it is found that (a) the demand for money in the long-run positively responds to real income and inversely to the interest rate spread, inflation, the real effective exchange rate, and the US real interest rate; (b) the long-run income elasticity is greater than unity; and (c) both the currency substitution and capital mobility hypotheses hold only in the long run.
Efficiency of Botswana's financial institutions: a data envelopment analysis
This article examines technical and pure technical efficiencies of 10 major financial institutions in Botswana during the period 2001 to 2006 using Data Envelopment Analysis (DEA). To obtain more robust and reliable results, the sensitivity of our efficiency indices were put to test by choosing three alternative approaches in specifying the mix of inputs and outputs. The empirical results indicate that (a) no matter which approach and year are taken into consideration, Bank of Baroda (BoB) and First National Bank (FNB) (which are both foreign banks) and Botswana Savings Bank (BSB) (which is a publicly owned institution) are consistently among the most efficient institutions and Botswana Development Corporation, African Bank Corporation and National Development Bank (NDB) are the least efficient ones; and (b) the most efficient banks are either small or large institutions in terms of their asset sizes. One can conclude that financial institutions can further enhance efficiency by adopting Self- Service Technologies (SSTs) such as telephone and Internet banking, which can substantially reduce their service delivery costs.
Malmquist indices of productivity change in Botswana's financial institutions
The productivity and efficiency of the financial sector is pivotal to the attainment of economic growth and development in developed and developing economies alike, and is of particular interest in the wake of financial sector reform and restructuring. This study applies the Malmquist productivity index to measure and decompose the total factor productivity change of ten financial institutions in Botswana in its postreform era, covering the period 2001-2006, into a 'catching up' or efficiency change, and a 'frontier shift' or technological change. The robustness and sensitivity of the empirical results presented are assessed by comparing outcomes from different input and output combinations derived from using the value added, intermediation and operating approaches. The empirical results indicate a loss or little productivity gain in Botswana's financial institutions, arising mainly from technological regress. Policy implications from this are highlighted in the paper.