Post-Asian Financial Crisis Efficiency Analysis.
Maximilian J. B. Hall†, Karligash A. Kenjegalieva‡ and Richard Simper† Department of Economics, Loughborough University,
Ashby Road, Loughborough, United Kingdom, LE11 3TU.
Within the banking efficiency analysis literature there is a dearth of studies which have considered how banks have ‘survived’ the Asian financial crisis of the late 1990s. Considering the profound changes that have occurred in the region’s financial systems since then, such an analysis is both timely and warranted. This paper examines the evolution of Hong Kong’s banking industry’s efficiency and its macroeconomic determinants through the prism of two alternative approaches to banking production based on the intermediation and services-producing goals of bank management over the post-crisis period.
research strategy we employ Tone’s (2001) Slacks-Based Model (SBM) combining it with recent bootstrapping techniques, namely the non-parametric truncated regression analysis suggested by Simar and Wilson (2007) and Simar and Zelenyuk’s (2007) group-wise heterogeneous sub-sampling approach. We find that there was a significant negative effect on Hong Kong bank efficiency in 2001, which we ascribe to the fallout from the terrorist attacks in America in 9/11 and to the completion of deposit rate deregulation that year. However, post 2001 most banks have reported a steady increase in efficiency leading to a better ‘intermediation’ and ‘production’ of activities than in the base year of 2000, with the SARS epidemic having surprisingly little effect in 2003. It was also interesting to find that the smaller banks were more efficient than the larger banks, but the latter were also able to enjoy economies of scale. This size factor was linked to the exportability of financial
† The financial support of the Hong Kong Institute for Monetary Research, where the co-authors were Research Fellows, is gratefully acknowledged. ‡ The authors would also like to thank L. Simar , A. Afonso, V. Zelenyuk, T. Weyman-Jones and G. Ravishankar, for helpful suggestions. ∗
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services. Other environmental factors found to be significantly impacting on bank efficiency were private consumption and housing rent.
JEL Classification: C23; C52: G21
Keywords: Finance and Banking; Productivity; Efficiency.
The Asian Financial Crisis (AFC), which erupted in Thailand during the Summer of 1997 and went on to cause such economic and financial devastation in the region in ensuing years, has been well documented (see, for example, Goldstein (1998) Hunter, Kaufman and Krueger (1999), and Jao (2001)). Hong Kong was one of just a few countries in the region to escape relatively unscathed, successfully avoiding a banking crisis although, of course, some damage was inflicted on the banks. The damage wrought by the AFC on the banks’ balance sheets was limited, however, by sound regulation introduced in the aftermath of the 1983-86 crisis and strong capitalisation. Supervisory reform in the wake of the AFC was thus largely unnecessary in Hong Kong, although the process of financial liberalisation continued. Previous studies that have investigated those countries that were involved in the AFC have primarily considered how banking systems operated throughout the turbulent period. For example, Shen (2005) employed a smooth transition parametric model to analyse the changes to banks’ balance sheets (traditional loans to off balance sheet items) during the AFC of Taiwanese banks during 1996-2001.
It was found that during this period the
traditional banks experienced decreasing returns to scale in loan markets, and banks which followed the universal-style banking system experienced increasing returns to scale in the off balance...