Measuring cost efficiency of banks with different ownership types: Evidence from Belarus

Abstract

This study investigates the correlation between the level of a bank’s cost efficiency and its belonging to one of the four ownership types existing in the Belarusian banking sector: core state-controlled, other state-controlled, foreign-controlled and domestic private banks. In order to analyze the data from the financial statements of all registered banks in Belarus under the period of 2010-2016, the Stochastic Frontier Analysis (SFA) is applied. I find core state banks to be the most cost-efficient group, which is followed by other state and domestic private banks, and the foreign-controlled banks as the least efficient. These results contradict the general findings of the papers about cost efficiency of banks in transition economies of the other East European countries, where foreign-controlled banks are found to be the most cost-efficient group but are in line with the studies of the Russian banking sector. Some of the potential reasons for such results may be: grants and discounts from the government to the core state-controlled banks; obligatory participation of the core state banks in the state housing programs, which lowers the borrowers-skimming costs; economy of scale.