A note on banking efficiency in Portugal, New vs. Old banks

Following entry into the European Community in 1986, Portugal transformed rapidly its repressed banking system with deregulation, the opening of borders, the granting of new banking licenses, and privatization. In a more competitive banking system, one would expect a priori an increase in operational efficiency. This paper attempts to quantify the magnitude of efficiency gains over the years 1990-1995. Moreover, the paper documents the relative efficiency performance of new domestic banks. Not hampered by a legacy of inefficiency from the past, they could operate nearer the efficiency frontier. The case of Portugal provides unique information on the joint effect of deregulation and the granting of new banking licenses on the change in operational efficiency of a previously repressed banking system. (C) 2003 Elsevier B.V. All rights reserved.