Cost efficiency of Kazakhstan and Russian banks: Results from competing panel data models
In this paper, we estimate cost efficiency of the Kazakhstan and Russian banks. A stochastic frontier (SF) approach based on a panel data for 2002–2006 is used. The Kazakhstan banking system is traditionally assumed to be more advanced compared to the Russian system. In 2003 Kazakhstan adopted the International Accounting System, and in 2005 Basel-2 norms were introduced. None of these happened in Russia during the period of our study. Given these differences, our objective is to examine whether there is a systematic difference in bank efficiency between them. For this we use two sets of SF panel models, viz., models which do not separate and do separate bank effects from inefficiency. Within each set we also consider models with a single and multiple outputs as well as alternative distributional assumptions on inefficiency. Empirically we do not find any significant differences in the cost efficiency scores of banks between these two countries during the period of our study, although some differences (within each country) are found when different distributional assumptions are used. Results are found to be quite robust across several alternative and competing models. We also find that many of the banks in both countries operate below their optimal size.