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Regular version of the site

Article

Bank ownership and cost efficiency: New empirical evidence from Russia

Economic Systems. 2017. Vol. 41. No. 2. P. 305-319.
Mikhail E. Mamonov, Vernikov A. V.

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 bank and bank group level. We deduct from gross costs the negative revaluations of foreign currency items generated rather by official exchange rate dynamics than by managerial decisions. 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 lowest (and decreasing over time) penetration into the Russian banking system. We further document that 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 into their lending decisions in favor of unprofitable projects. Private domestic banks that maintain lower capitalization significantly overcome foreign banks and do not differ from the core state banks with this respect.