The X-Efficiency of Commercial Banks in Hong Kong

FRB of San Francisco Working Paper No. 2002-14

31 Pages Posted: 3 May 2005

See all articles by Simon H. Kwan

Simon H. Kwan

Federal Reserve Bank of San Francisco

Date Written: December 2001

Abstract

This paper uses the stochastic econometric cost frontier approach to investigate the cost efficiency of commercial banks in Hong Kong. On average, the X-efficiency of Hong Kong banks is found to be about 16 to 30 percent of observed total costs, which is comparable to the findings in the U.S. banking industry. X-efficiency is found to decline over time, indicating that banks in Hong Kong are now operating closer to the cost frontier than before. This is consistent with technological innovation that might have occurred in the Hong Kong banking industry. Furthermore, the average large bank in Hong Kong is found to be less efficient than the average small bank, particularly during the earlier time periods. Finally, X-efficiency is found to be related to certain bank characteristics. Specifically, X-efficiency is found to decline with bank size, deposit-to-asset ratio, loan-to-asset ratios, provision for loan loss, and loan growth, and to increase with off-balance sheet activities.

Suggested Citation

Kwan, Simon H., The X-Efficiency of Commercial Banks in Hong Kong (December 2001). FRB of San Francisco Working Paper No. 2002-14. Available at SSRN: https://ssrn.com/abstract=709404 or http://dx.doi.org/10.2139/ssrn.709404

Simon H. Kwan (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3190 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
255
Abstract Views
1,618
rank
118,231
PlumX Metrics