Comparative Bank Efficiency across Select ASEAN Countries

Abstract

Bank efficiency becomes critically important in an environment of increasingly contestable international markets. As such, information regarding the efficiency of banks in a particular country as compared with their counterparts in other countries is important, as it enables policy-makers to make better decisions regarding the direction of their banking industry. Hence, by using a stochastic cost frontier approach, this study investigates whether there are significant differences in bank efficiency across select countries in the ASEAN region (Indonesia, Malaysia, the Philippines, and Thailand). The results indicate that there are significant differences. The results also show that, on average, the ASEAN banks enjoy increasing returns to scale. Although scale economies for the ASEAN banks decrease with asset sizes, larger banks tend to have higher cost efficiency than smaller banks. These results support the policy of banking sector consolidation in the ASEAN countries.

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