Bank Ownership and Cost Efficiency: New Empirical Evidence From Russia

26 Pages Posted: 7 Mar 2015 Last revised: 12 Jul 2019

See all articles by Mikhail Mamonov

Mikhail Mamonov

National Research University Higher School of Economics; Center for Macroeconomic Analysis and Short-term Forecasting

Andrei Vernikov

Russian Academy of Sciences (RAS) - Institute of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: June 9, 2015

Abstract

This paper investigates the cost efficiency of Russian banks with regard to their heterogeneity in terms of ownership form, capitalization and asset structure. Using bank-level quarterly data over the period 2005–2013, we perform stochastic frontier analysis (SFA) and compute cost efficiency scores at the bank and bank group levels. We deduct from gross costs the negative revaluations of foreign currency items generated by official exchange rate dynamics rather than by managerial decisions. The results indicate that the core state banks, as distinct from other state-controlled banks, were nearly as efficient as private domestic banks during and after the crisis of 2008–2009. Foreign banks appear to be the least efficient market participants in terms of costs, which might reflect their lower (and decreasing over time) penetration of the Russian banking system. We further document that the group ranking by cost efficiency is not permanent over time and depends on the observed differences in bank capitalization and asset structure. We find that foreign banks gain cost efficiency when they lend more to the economy. Core state banks, conversely, lead in terms of cost efficiency when they lend less to the economy, which can result from political interference in their lending decisions in favor of unprofitable projects Private domestic banks that maintain a lower capitalization significantly outperform foreign banks and do not differ from the core state banks in this respect.

Keywords: Banks, Comparative Efficiency, SFA, State-Controlled Banks, Russia

JEL Classification: G21, P23, P34, P52

Suggested Citation

Mamonov, Mikhail and Vernikov, Andrei V., Bank Ownership and Cost Efficiency: New Empirical Evidence From Russia (June 9, 2015). Economic Systems, Vol. 41, No. 2, 2017. Available at SSRN: https://ssrn.com/abstract=2574667 or http://dx.doi.org/10.2139/ssrn.2574667

Mikhail Mamonov

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Center for Macroeconomic Analysis and Short-term Forecasting ( email )

47, Nakhimovsky prospekt
Moscow, 117418
Russia
+7(499)7241204 (Phone)
+7(499)1290922 (Fax)

Andrei V. Vernikov (Contact Author)

Russian Academy of Sciences (RAS) - Institute of Economics ( email )

32, Nakhimovsky Prospekt
Moscow, 117218
Russia

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