IMPACT OF FINANCIAL CRISIS ON BANKING EFFICIENCY: EVIDENCE FROM 11 CEE COUNTRIES

In this paper, we use a non-parametric approach to examine the efficiency of banks from 11 CEE countries (Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, the Slovak Republic, Slovenia, and the three Baltic States: Estonia, Latvia and Lithuania, according to OECD definition) and its determinants in the face of global financial crisis, during a ten year period, from 2003 to 2012. We limit our sample to this period in order to observe the dynamics of efficiency before and after the financial crisis. We develop a two-stage empirical model that involves estimating bank efficiency in the first stage and assessing its determinants in the second one. In order to measure the efficiency growth of the banking industry, we calculate Malmquist index using a non-parametric linear programming approach. Our results suggest that during the first period under study (2002-2007), the banks from GEE countries have been more efficient, mainly because of the integration in to European Union. In the second period (2007-2012), financial crisis took its toll on banking efficiency even though banks have attempted to reduce personnel costs.