Banking Efficiency in the Context of European Integration

Abstract

This paper compares commercial banks' efficiency in four relatively homogenous groups of countries, though with different levels of economic development and involvement in the process of European integration. The first group consists of Portugal and Greece; the second group of the Czech Republic, Hungary, Poland, and Slovakia; the third of Estonia, Latvia, and Lithuania; and the fourth of Bulgaria and Romania. The paper aims to reveal whether the differences among regions and countries in their stages of European integration and economic development are also visible in banking efficiency. Thus, the hypothesis that a higher degree of European economic integration and economic development goes hand in hand with higher banking efficiency is tested. Employing data envelopment analysis on unconsolidated data, we evaluate the efficiency of financial intermediation from 2001 to 2003. Results suggest that differences in banking efficiency exist among the regions analyzed, and the hierarchy corresponds with the hierarchy of regions in terms of economic development and degree of integration. However, the rapid growth of banking intermediation efficiency recorded in Central and East European countries could trade off the actual efficiency gap compared to traditional EU members.

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