Bank Efficiency: What Matters in an Emerging Economy

Abstract

This study investigates the determinants of bank efficiency in the banking sector, focusing on several key variables from 2011 to 2022. Initially, we applied Ordinary Least Squares (OLS) followed by feasible generalized least squares (FGLS) regression to analyze the panel dataset. The results show that the net operating profit after tax has a significant impact on CIR, suggesting that higher profitability improves efficiency. Conversely, the total assets exhibit a significant positive relationship with CIR, indicating that larger banks tend to have higher cost inefficiencies. The loan loss provisions also show a significant adverse effect, reflecting that higher provisions are associated with lower efficiency. However, the Operating Expenses variable does not significantly affect CIR. Additionally, liquidity demonstrates a significant negative impact, suggesting that higher liquidity reduces inefficiencies. These findings contribute to an understanding of the factors influencing bank efficiency and offer insights for policy and management strategies to enhance the performance of the banking sector.