Efficiency of Slovak Banking Sector before and after the EU Accession Mária Širaňová University of Economics in Bratislava, Slovakia Milan Čupić University of Kragujevac, Serbia

Introduction The purpose of the paper is to examine efficiency of Slovak banks and its determinants before and after the accession to the EU in 2004; We test the effect of bank efficiency determinants on five different bank efficiency scores, namely cost, allocative, technical, pure technical, and scale efficiency.

Literature Review Results of the studies on bank efficiency in Slovakia and cross-country studies including Slovakia are mixed. Studies by Stavarek and Sulganova (2009), Kocisova (2008) and Brissimis et al. (2008) find slight increase in efficiency in the pre-EU accession period, Boda and Zimkova (2014) and Vincova (2006) report decrease in the efficiency during this period. Results for 2005-2008 period are equally inconclusive - Boda and Zimkova (2014) with Repkova and Migletti (2014) report increase in cost efficiency while Pancurova and Lyocsa (2013) decrease in overall efficiency score.

Slovak banking sector overview Many issues in the late nineties: banking sector efficiency was the lowest among Visegrad countries, soundness of banking practices was challenged and Slovakia belonged to the countries with the highest banking sector overall systemic risk in short as well as medium term. Process of banking sector restructuring during the years 1998-2000 had cleaned the asset side of many domestic banks and bad loans were transferred to special state institutions. The 2001 was marked by the start of the privatization wave. In 2004 Slovakia’s accession to the EU. The preparation phase for the entry to the common monetary union, that took place during the years 2006-2008, was successfully ended as of 1 January 2009 by euro adoption;

Slovak banking sector overview (cont.)

Data sample description

Methodology Allocative efficiency (AE) Cost efficiency (CE) We use DEA to estimate efficiency of sample of banks. DEA is a mathematical programming technique that forms a piecewise linear frontier that envelops the observed data points and treats all deviations from the frontier as inefficiency. Cost efficiency (CE) Scale efficiency (SE) Pure technical efficiency (PTE) Allocative efficiency (AE) Technical efficiency (TE)

Methodology (cont.)

Bank efficiency determinants - results

Conclusions Growth in cost efficiency from 2004-2008 should be viewed in the context of regulatory changes in the process of Slovakia accession to EU. Foreign banks are more cost, allocativelly and technically efficient than domestic banks. Domestic banks are significantly less pure technically, but significantly more scale efficient implying that domestic banks should improve their management, while foreign banks should readjust their size. Small banks are more efficient than large banks. Major source of cost inefficiency is technical inefficiency driven mostly by poor input utilization.

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