Business efficiency of the commercial banks in ASEAN

This study examines the determinants of cost inefficiency of banks operating in 8 member countries of the Association of Southeast Asian Nations (ASEAN): Indonesia, Malaysia, Singapore, Thailand, the Philippines, Cambodia, Brunei and Vietnam. The author defines the cost inefficiency using accounting based efficiency known as business efficiency (CIR). Second, the researcher regresses the cost inefficiency ration on a set of bank specific variables (size, equity to total asset, personnel expenses to total expenses) and economic variables (economic growth and inflation rate) using ordinary least squared (OLS) regression analysis. The dataset of 504 banks in the ASEAN countries is used for the period from 2008 to 2012. The results show that the average cost inefficiency ratio during the period is about 59%. Banks from Vietnam exhibit the lowest cost inefficiency relative to banks in the other ASEAN countries. It is found that cost inefficiency is positively determined by inflation, loan loss provision, personnel expenses, capital adequacy and negatively by asset size and liquidity position