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Cost Efficiency of the Banking Sector in Vietnam: A Bayesian Stochastic Frontier Approach with Regularity Constraints
Author(s) -
Vu Ha Thu,
Turnell Sean
Publication year - 2010
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/j.1467-8381.2010.02035.x
Subject(s) - cost efficiency , frontier , vietnamese , estimation , banking industry , economics , econometrics , stochastic frontier analysis , bayes estimator , bayesian probability , cost estimate , industrial organization , microeconomics , statistics , mathematics , finance , computer science , archaeology , production (economics) , operating system , linguistics , philosophy , management , history
This paper investigates the cost efficiency of the Vietnamese banking industry. To obtain an appropriate estimate of cost efficiency, monotonicity and concavity constraints are incorporated in the estimation of the cost frontier using the Bayesian approach. Overall, the level of cost efficiency of Vietnam's banking sector is relatively high, around 87 percent. The findings reveal minor and insignificant differences in the cost efficiency of different groups of banks classified by ownership. Furthermore, throughout the estimation period, the industry faced a slight decrease in cost efficiency. This could be explained by increases in the costs of managing diverse activities, the enlargement of branch networks and the upgrading of the banking technology platform.