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IMF Bank-Restructuring Efficiency Outcomes: Evidence from East Asia

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Abstract

We report new findings on bank efficiency in East Asian countries for the pre- and post-IMF restructuring periods. We find that bank efficiency has improved, but only to the pre-IMF intervention level, and that restructured banks are not more efficient than their unrestructured counterparts. Different restructuring measures have different effects. Bank closures are economically justified, but mergers show short-term efficiency losses. Recapitalization and reprivatization of badly performing banks lead to efficiency improvement, but also increase government ownership. Ease of entry that has allowed for more foreign bank participation results in slightly improved performance of badly performing banks.

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Notes

  1. We also conducted an evaluation of the efficiency performance of the closed banks prior to their closures. The results, which are available on request, indicate that their pre-closure performance is significantly worse than their unclosed counterparts, suggesting that the closure decisions are supported on economic grounds.

  2. CAMEL stands for Capital, Asset Quality, Management, Earnings, and Liquidity. This framework has been used as a regulatory tool for banks in the United States, India, and the four countries in this study.

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Acknowledgements

The authors would like to thank the participants of the FMA (Asia) Conference (Auckland, 2006) for their very useful comments and suggestions. Many thanks also go to the anonymous reviewers and editor of the JFSR for their great comments, which have significantly contributed to improving the quality of this paper, and to Sandra Sizer for her excellent editing. Luc Can gratefully acknowledges the financial support from the Australia–Asia Award during the research of this paper; part of which was drawn from his Doctoral dissertation completed at Monash University, Australia.

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  1. Harvard Kennedy School, 79 JFK Street, Cambridge, MA, 02138, USA

    Luc Can

  2. University of Tokyo/Bond University, University Drive, Qld, 4229, Australia

    Mohamed Ariff

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  1. Mohamed Ariff
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Correspondence to Luc Can.

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Ariff, M., Can, L. IMF Bank-Restructuring Efficiency Outcomes: Evidence from East Asia. J Financ Serv Res 35, 167–187 (2009). https://doi.org/10.1007/s10693-008-0047-2

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