Bank Ownership and Cost Efficiency in Russia, Revisited

46 Pages Posted: 12 Jun 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 11, 2015

Abstract

This paper adds to the literature on banking in transition with regard to the comparative efficiency of public, private and foreign banks. We perform stochastic frontier analysis (SFA) of Russian bank-level quarterly data from 2005 to 2013. The method of computation of comparative cost efficiency is amended to control for the effect of the revaluations of foreign currency items in bank balance sheets. All public banks are split into the core and other state-controlled banks. We employ the generalized method of moments to estimate a set of distance functions measuring the observed differences in the SFA scores of banks and bank clusters, depending on the heterogeneity in risk preference and asset structure. These distance functions explain the changes in bank efficiency rankings. Our results on comparative bank efficiency are qualitatively different from those in mainstream papers. The efficiency scores of Russian banks are higher and less volatile, and spreads between the scores of different bank types are narrower than hitherto believed. Foreign banks appear as the least cost-efficient type of market participants, while the core state banks are, on average, nearly as efficient as domestic private banks. We suggest that foreign banks are capable of being more cost efficient than others if they increase loans-to-assets ratios above the sample median level. Core state banks, conversely, lead in terms of cost efficiency if their loans-to-assets ratio falls below the sample median level. Our approach is potentially applicable to the analysis of bank efficiency in other dollarized emerging markets.

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 in Russia, Revisited (June 11, 2015). Higher School of Economics Research Paper No. WP BRP 46/FE/2015. Available at SSRN: https://ssrn.com/abstract=2617300 or http://dx.doi.org/10.2139/ssrn.2617300

Mikhail Mamonov (Contact Author)

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

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

32, Nakhimovsky Prospekt
Moscow, 117218
Russia

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