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The evolution of cost and profit efficiency of Philippine commercial banks

Philippine Review of Economics

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Title The evolution of cost and profit efficiency of Philippine commercial banks
 
Creator Dacanay III, Santos José O.; College of Social Sciences, University of the Philippines Baguio
 
Subject stochastic frontier approach; efficiency; Philippines; banks
 
Description The paper aims to analyse the evolution of cost and profit efficiency for Philippine commercial banks during the period 1992-2004. It has been observed that cost inefficiency increased after liberalization in 1994 and further shot up after the Asian financial crisis. Profit efficiency, on the other hand, is steadily declining, from above the 90 percent mark prior to liberalization to 84 percent in 2004. The evolution of efficiency scores clearly shows that Philippine banks experienced declining profit and cost efficiencies. Two hypotheses can be suggested to explain these evolutions, following Berger and Mester [1999]. First is the increasing quality of bank services hypothesis due to competitive pressures, which led to higher costs of production and lower profit margins. Second is the “quiet life” hypothesis. Threatened by new competitors, the banks have opted for defensive strategies instead of reducing their costs. JEL classification: G21, G28
 
Publisher Philippine Review of Economics
 
Contributor —
 
Date 2011-01-10
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.econ.upd.edu.ph/pre/index.php/pre/article/view/647
 
Source Philippine Review of Economics; Vol 47, No 1 (2010); 109-146
1655-1516
 
Language eng
 
Relation http://www.econ.upd.edu.ph/pre/index.php/pre/article/view/647/6
 
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