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EXPLORING THE NEXUS BETWEEN BANKING SECTOR REFORM AND PERFORMANCE: EVIDENCE FROM NEWLY ACCEDED EU COUNTRIES

Sophocles N. Brissimis
Bank of Greece and University of Piraeus

Manthos D. Delis
Athens University of Economics and Business


Nikolaos I. Papanikolaou
Athens University of Economics and Business

ABSTRACT

The aim of this study is to examine the relationship between banking sector reform and bank performance – measured in terms of efficiency, total factor productivity growth and net interest margin – accounting for the effects through competition and bank risk-taking. To this end, we develop an empirical model of bank performance and draw on recent econometric advances to consistently estimate it. The model is applied to bank panel data from ten newly acceded EU countries. The results indicate that both banking sector reform and competition exert a positive impact on bank efficiency, while the effect of reform on total factor productivity growth is significant only toward the end of the reform process. Finally, the effect of capital and credit risk on bank performance is in most cases negative, while it seems that higher liquid assets reduce the efficiency and productivity of banks.

Keywords: Bank performance; Banking sector reform; Competition; Risk-taking

JEL classification: G21; L1; C14

Acknowledgements: The authors would like to thank H. Gibson, G. Hondroyiannis, Y. Tsutsui and H. Uchida for very helpful comments. The views expressed in this paper do not necessarily reflect those of the Bank of Greece.

Correspondence:

Sophocles N. Brissimis
Economic Research Department
Bank of Greece, 21 El. Venizelos Ave.,
102 50, Athens, Greece
Tel. +30210-320 2388
Email: sbrissimis@bankofgreece.gr


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