Operating Performance of Banks among Asian Economies : An International and Time Series Comparison

Per unit bank operating costs are found to vary significantly across Asian countries and over time. The strong correlation between per unit labor cost and physical capital cost suggests that there exist systematic differences in bank operating efficiency across countries. The declining operating costs between 1992 and 1997 is consistent with improving operating performance. The run-up in operating costs since 1997 coincided with the Asian financial crisis, suggesting that banks incurred additional costs to deal with problem loans while outputs declined simultaneously. Labor cost share is also found to decline significantly between 1997 and 1999, perhaps because banks were able to cut labor force faster than physical capital. Significant differences in labor cost share across countries suggest cross-country differences in bank production functions. The positive relation between labor cost share and wage rate indicates that banks use more labor due to higher labor force productivity, rather than labor being cheap