Banking industry development and bank efficiency in an emerging market economy

Abstract

Banking system is considered as a backbone of a country’s economic development. Understanding bank efficiency and relationship between this efficiency and banking industry development are considered as important issues for the sustainable development of an economy. This paper employs both banking industry indicators and bank specific indicators to investigate the bank efficiency and the relationship between the bank efficiency and banking industry development in Vietnam which is known as an emerging market economy. Using the stochastic frontier analysis approach for a large sample of commercial banks in Vietnam over the period 2000 - 2013, the findings indicate positively linkages of the bank efficiency and banking industry development of the banking sector. The findings also suggest the influence of several bank specific indicators and macroeconomic indicators in bank efficiency.