An assessment of Portuguese banks' efficiency and productivity towards euro area participation

This paper analyses the production technology of Portuguese banks during the 1992-2006 period through the estimation of a translog cost frontier. This period is of major interest because it covers Portugal's euro area accession and its impact on the banking system. Hence, critical factors impac...

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Bibliographic Details
Published in:Journal of productivity analysis 2013-04, Vol.39 (2), p.177-190
Main Authors: Boucinha, Miguel, Ribeiro, Nuno, Weyman-Jones, Thomas
Format: Article
Language:English
Subjects:
2010 Conference of the EURO Working Group on Efficiency and Productivity Analysis: "Global Trends in the Efficiency and Risk Management of Financial Services"
Accounting/Auditing
Bank assets
Bank capital
Bank loans
Bank technology
Banking industry
Banks
Cost efficiency
Cost estimates
Cost functions
Cost of equity
Costs
Data envelopment analysis
Deposit accounts
Econometrics
Economics
Economics and Finance
Efficiency
Equity capital
Euromarkets
Eurozone
Funding
Liberalization
Loans
Marginal costs
Microeconomics
Operations Research/Decision Theory
Productivity
Shadow banks
Sovereign debt
Studies
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Summary:This paper analyses the production technology of Portuguese banks during the 1992-2006 period through the estimation of a translog cost frontier. This period is of major interest because it covers Portugal's euro area accession and its impact on the banking system. Hence, critical factors impacting the banking system are identified against the background of increasing financial integration prior to the financial crisis that started in 2007 and later translated into strains in some European sovereign debt markets. Banks are modelled as firms which produce loans and other earning assets, choosing the cost minimizing combination of labour, capital and interest bearing debt, subject to holding a predetermined level of equity. According to the results of this study, technological progress has shifted the cost frontier downwards throughout the period under consideration, whereas the distance at which banks have operated from the frontier seems to have remained constant. Further, increases in production under scale economies have also contributed to the recorded increase in productivity.
ISSN:0895-562X
1573-0441
DOI:10.1007/s11123-012-0310-2