Determinants of Bank Cost Efficiency in Transition Economies

Abstract

This chapter leads a complex research study on the determinants of bank cost efficiency in transitional economies based on empirical evidence for Latin America, Central, and Eastern Europe, and South-East Asia. The empirical results suggested that banks, which follow a more cautious strategy, characterized by lower risk appetite and average expectations on profitability, have higher cost efficiency. Moreover, the empirical evidence highlighted the fact that a higher gross domestic product growth rate implies an increase in the inefficiency level, indicating an unsustainable bank management behavior, which in periods of economic growth adopts policies that can generate inefficiency in order to gain market share and to obtain higher bonuses. The global financial crisis has had a high negative impact on the banking system in transition economies.