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Portuguese banks’ performance: comparing efficiency with their Spanish counterparts

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Abstract

Using the intermediation approach, where banks are seen as intermediaries between savers and investors, receiving deposits and providing loans, we study the efficiency of Portuguese Banks, using data from 2008 until 2013 from BankScope Database. In the first stage, data envelopment analysis is applied in order to measure efficiency. We extend this analysis to the major Spanish banks and compare the results. Given the 6-year period, the results highlight better efficiency scores for the 14 Spanish banks with an average of 0.815, comparing with the 10 Portuguese banks, which exhibit an average score of 0.783. We cover the recent financial crisis period, to ascertain if there are significant differences between the two neighbouring countries. In the second stage, we use the generalized linear models approach, applying a fractional response model, in order to explain the efficiency scores. In this stage, we use as potential explanatory variables bank specific attributes and country-specific and institutional variables. Our results indicate that the characteristics of each bank appear important to explain efficiency, particularly liquidity, and the level of financial development of a country. Additionally we investigate if there are structural differences between the two countries. The results of the Chow test indicate that we do not reject the hypothesis that the determinants of bank efficiency are the same in both countries.

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Notes

  1. See, for instance Hauner (2005) or Pasiouras (2008) who applied Tobit regressions.

  2. It is also possible to find papers focused on the analysis of bank branches within the same financial institution.

  3. Some of the studies focused on the analysis of bank branches with DEA: Camanho and Dyson (1999), Portela and Thanassoulis (2007).

  4. For more details on the DEA methodology, see for instance, Ray (2004).

  5. We may consider Portuguese and Spanish banks homogeneous units, because they share the same business model and although the analysis is focused on two different countries, the banking systems are similar with some of the banks operating in Portugal being owned by Spanish institutions (for instance, Totta, Popular, BBVA).

  6. For a detailed analysis of fractional response models see Ramalho et al. (2011).

  7. The other possibility was to choose output orientation, where the goal is to maximize outputs maintaining the level of inputs constant.

  8. Database available at http://info.worldbank.org/governance/wgi/index.aspx#home.

  9. A DEA analysis of banks in Portugal and Spain was first performed with separate frontiers for each country and then with a “common” frontier.

  10. In May, 2011 the Portuguese Government signed the Memorandum of Understanding with the Troika (the European Commission, the European Central Bank and the International Monetary Fund).

  11. Despite their exclusion, they do not affect the ranking and the average score of each bank of Table 2, because DEA compares each bank with its peers. The benchmark is BBVA and we are excluding the last two banks in the ranking.

  12. VIF is an indicator of how much of the inflation of the standard error could be caused by collinearity. As a rule of thumb, values above 10 should be a cause of concern and must be corrected.

  13. It is important to note that this could be due to the fact that the majority of foreign banks in the sample are Spanish banks operating in Portugal and the Spanish institutions are slightly more efficient as already noted.

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Authors and Affiliations

  1. Management Department, Polytechnic Institute of Beja, ESTIG, Rua Pedro Soares, Campus do IPBeja, 7800-295, Beja, Portugal

    Maria S. Basílio, Maria Clara P. Pires & José Filipe Pires Reis

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  1. Maria S. Basílio
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  2. Maria Clara P. Pires
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  3. José Filipe Pires Reis
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Correspondence to Maria S. Basílio.

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We would like to thank the conference participants at the 15th EBES conference 2015—Lisbon. All errors and omissions are ours.

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Basílio, M.S., Pires, M.C.P. & Reis, J.F.P. Portuguese banks’ performance: comparing efficiency with their Spanish counterparts. Eurasian Econ Rev 6, 27–44 (2016). https://doi.org/10.1007/s40822-015-0033-6

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