Assessing the Effects of the Asian Financial Crisis on Banking Performance in Southeast Asia

Abstract:     
This study examines whether domestic banks perform better than their foreign-owned counterparts, by examining the banking system across eight Southeast Asian countries for the period 1994-2005. According to our results, banks’ performance worsened in the post-Asian crisis period. The higher non-performing loan to total assets ratio is a sign of higher risk and is negatively associated with bank profits. Our results also suggest that multinational banks, possessing global advantage, are more cost efficient than domestic banks in developed countries, while the reverse seems to occur in developing countries. This home-field advantage pattern appears to be stable over time, while that for global advantage has changed: no such advantage was reported after the recovery from the financial crisis. As a result, the significant improvement in efficiency of state-owned and domestic banks may be due to the implementation of bank restructuring programmes and governments’ financial support, following the 1997 financial crisis.

Keywords: Asian Financial Crisis, Banking Performance, Home-Field Advantage, Global Advantage

JEL Classification: F00, G21

Accepted Paper Series