A study of efficiency and productivity of the Greek banking industry after the admission of Greece in the EMU

Abstract

The purpose of this paper is to investigate efficiency and productivity change of the Greek banking system after the admission of Greece in the EMU and the adoption of the Euro in 2001. This important event generates by itself the interest to explore the impact of the use of the common currency to the operation and performance of the Greek banking industry. The present study uses the Data Envelopment Analysis (DEA) in order to measure efficiency and the Malmquist Productivity Index to calculate productivity change of the Greek banking system. Two different data sets of variables are used, which are obtained from the balance sheets of a sample of 9 domestic banks, of the period 2001-2004, covering roughly 78% of the total assets of the Greek banking sector in 2004. The results show that most Greek banks obtained a high level of average efficiency of about 94%, in both models, during the period under investigation. Moreover, there is evidence that the existing inefficiencies of Greek banks, are mainly due to incorrect bank scale. The results of productivity changes are relatively mixed for the two models for the period 2001-2002. Both models, however, show high productivity growth for the period 2002- 2003, mainly due to institutional changes. Finally, for the period 2003-2004 the models show a mild productivity growth with some banks exhibiting a productivity decline.

JEL Classifications: G21, G34