The efficiency of the Big-Three Greek banks in South Eastern Europe - A DEA approach.

Abstract

After the collapse of communism in 1989, the transition countries of South Eastern Europe received significant waves of FDI inflows, a large part of which targeted the financial services market. The SEE countries performed some important banking reforms as a part of their transitional process which enabled foreign banks enter the market through greenfield or brownfield investments. In the early 90’s, Greek banks followed their home clients and the foreign competition and penetrated the SEE market mostly through acquiring local banks, currently operating in Albania, Bulgaria, FYROM, Romania and Serbia (SEE-5). Despite the wide presence of Greek banks in SEE, there is scarce literature on their performance there. This dissertation aims to assess the comparative efficiency of the largest three banks operating in SEE-5 with a Data Envelopment Analysis (DEA) approach, from 2005 until 2010. In order to estimate the efficiency of the Greek banks in SEE, an output-oriented DEA model is applied. The selection of the inputs and outputs was made according to the intermediation approach. The efficiency of the banks was estimated under both constant returns to scale and variable returns to scale in order to calculate scale efficiency apart from the technical one. NBG displays a higher average Overall Technical Efficiency (OTE) and Scale Efficiency (SE) than Alpha Bank. As far as Technical Efficiency (TE) is concerned the two banks are quite on the same level. Eurobank presents lower efficiency scores than the other two banks and is quite affected from the economic crisis with inefficiencies both attributed to management and operations of scale. The total average efficiency also indicates that the efficiency of Greek banks was affected by the crisis, with 2009 to be the worst year.