Ownership, risk and efficiency in the banking sector of the ASEAN countries

Authors: Djalilov, K. and Lam, T.N.

Editors: Lieonov, S.

Journal: Financial Markets, Institutions and Risks

Volume: 3

Issue: 2

Pages: 5-16

DOI: 10.21272/fmir.3(2).5-16.2019

Abstract:

Research investigating the determinants of banking performance has been at the centre of policy and academic debate following the global financial crisis (2007-2009). Thus, the purpose of this paper is to contribute to the assessment of the factors impacting banking efficiency. Whilst there are many studies investigating this problem in developed and emerging countries, there is little research addressing this question in the countries of the Association of South East Asian Nations (ASEAN). The ASEAN as a region is among one of the fastest growing in the world. Using system GMM this paper examines the effects of ownership and risk on efficiency for 71 banks of the ASEAN countries, considering the period 2011-2016. All financial and economic data are deflated by their corresponding Consumer Price Indices (CPIs) to the 2011 price level to control for inflation effects and are converted to constant US dollars by using the 2005 PPP conversion rates. We use stochastic frontier analysis (SFA) to estimate a measure of bank efficiency. This allows the measurement of inefficiency for each bank from the best-practice frontier incorporating bank-, industry- and country-specific variables. Moreover, this study explores the efficiency effects of six categories of bank ownership such as widely-held, bank, institutional, industry, family and state. The findings indicate that different categories of ownership have different effects on bank efficiency. Particularly, they show that the widely-held banks and the banks with the bank controlling ownership experience lower efficiency. The results additionally indicate that overall risk-taking improves efficiency; however, higher levels of risk-taking lower efficiency. The paper also provides some relevant policy-implications.

https://eprints.bournemouth.ac.uk/32373/

Source: Manual