Table 2 – Inefficiency estimates: summary results

Table 2 – Inefficiency estimates: summary results

The Pearson correlation coefficients between these indices are:

- INEFI: DEA/INEFI: SFA-E: 0.243

- INEFI: SFA-E/INEFI: SFA-T: 0.208
The three correlation coefficients are significant at the 5% level, hence suggesting consistent results from these methods. As expected, inefficiency indices computed from the DEA method are the highest and INEFI: SFA-E the lowest, allowing us to conclude that, on average, the efficiency lower bound is 63%. That is, if all banks were able to use the best practice technology, there could be (maximum) savings of around 37% of observed costs.

Table 3 contains inefficiency breakdown by type of organization. Results show that if a bank is member of a group then it is more cost efficient. They also show that foreign banks are more cost efficient⁵. On the contrary, results for the age of the institution are not consistent across methods. Old banks (in the market before 1990) show higher inefficiency levels for the DEA and SFA-E methods, but lower for the SFA-T method. As for the structure of property, government-owned institutions are not very efficient: on average, inefficiency represents something in the vicinity of 21-44% of costs. But privatized banks are more efficient than public institutions thus suggesting improved efficiency scores after reprivatization.

Table 3: Cost inefficiency, by type of organization

	DEA	SFA-T	SFA-E
Private banks	0.388	0.178	0.045
Privatized banks Government-owned banks	0.295 0.440	0.172 0.209	0.126 0.217
New bank Old bank	0.367 0.375	0.206 0.176	0.062 0.109
Foreign bank Domestic bank	0.336 0.392	0.161 0.193	0.005 0.145
Member of a bank group Non-member of a bank group	0.234 0.453	0.167 0.192	0.098 0.098

Off all the existing government-owned banks⁶, only 2 still remain in public hands: the Caixa Geral de Depósitos (CGD) and the Banco Nacional Ultramarino (BNU). The reprivatization process took off in 1989 with the Banco Totta & Açores (see annex 1). The last two banks to be privatized were the BFE (3^rd phase in 7February1997) and BCA (2^nd phase in 9December1996). These reprivatized banks constitute the bulk of the acquisitions that occurred in the nineties and are the ones analyzed in this paper.

Table 4 shows inefficiency scores on an annual basis for privatized banks. Results for BANIF, BCA, BESCL and BFB are consistent for the three methods, suggesting increasing efficiency after privatization. As regards the other privatized banks (BFE, BPA, BPSM, CPP and UBP), the evidence is not convincing: when we use the SFA method with endogenous inefficiency (SFA-E) there seems to be a clear efficiency increase, but that is not the case for the other two methods.

We may therefore conclude that in general cost efficiency levels improved after privatization, hence suggesting better cost controls and input rationalization in the aftermath of the control change.

Table 4: Inefficiency scores for privatized banks

BANIF	1990	1991	1992	1993	1994	1995	1996	1997
			23.11.92
DEA	0.795	0.513	0.608	0.767	0.493	0.456	0.460	0.497
SFA-T	0.257	0.178	0.179	0.234	0.207	0.172	0.152	0.157
SFA-E	0.302	0.302	0.295	0.268	0.008	0.007	0.259	0.115

BCA	1990	1991	1992	1993	1994	1995	1996	1997
							2.7,9.12
DEA	1.611	1.538	1.208	1.674	1.155	0.988	1.062	1.247
SFA-T	0.663	0.547	0.416	0.571	0.362	0.345	0.288	0.318
SFA-E	0.286	0.284	0.285	0.273	0.278	0.273	0.271	0.107

BESCL	1990	1991	1992	1993	1994	1995	1996	1997
		9.7.91	25.2.92
DEA	0.297	0.471	0.190	0.185	0.166	0.145	0.089	0.000
SFA-T	0.164	0.200	0.121	0.188	0.108	0.102	0.110	0.110
SFA-E	0.304	0.296	0.137	0.128	0.131	0.127	0.122	0.118

BFB	1990	1991	1992	1993	1994	1995	1996	1997
		27.8.91	20.7.92
DEA	0.736	0.490	0.429	0.565	0.377	0.305	0.044	0.111
SFA-T	0.274	0.202	0.225	0.285	0.176	0.149	0.120	0.159
SFA-E	0.299	0.299	0.131	0.124	0.127	0.124	0.122	0.115

BFE	1990	1991	1992	1993	1994	1995	1996	1997
					27.12.94		28.8.96	7.2.97
DEA	0.054	0.178	0.028	0.157	0.105	0.117	0.072	0.145
SFA-T	0.065	0.083	0.063	0.109	0.087	0.119	0.106	0.104
SFA-E	0.321	0.166	0.166	0.154	0.152	0.127	0.113	0.121

BPA	1990	1991	1992	1993	1994	1995	1996	1997
	11.12.90		25.5.92	7.7.93		24.3.95
DEA	0.235	0.314	0.052	0.000	0.000	0.033	0.000	0.016
SFA-T	0.134	0.169	0.085	0.130	0.089	0.114	0.120	0.133
SFA-E	0.307	0.155	0.159	0.150	0.133	0.127	0.122	0.117

BPSM	1990	1991	1992	1993	1994	1995	1996	1997
					16.11.94	28.3.95
DEA	0.000	0.091	0.376	0.570	0.307	0.091	0.145	0.032
SFA-T	0.175	0.154	0.159	0.261	0.204	0.236	0.241	0.277
SFA-E	0.302	0.300	0.296	0.283	0.181	0.118	0.114	0.109

CPP	1990	1991	1992	1993	1994	1995	1996	1997
			2.12.92
DEA	0.647	0.565	0.420	0.639	0.355	0.353	0.294	0.300
SFA-T	0.215	0.230	0.176	0.256	0.122	0.126	0.125	0.162
SFA-E	0.301	0.295	0.293	0.124	0.129	0.126	0.121	0.114

UBP	1990	1991	1992	1993	1994	1995	1996	1997
				3.2.93		11.7.95
DEA	0.721	0.497	0.416	0.972	0.479	0.513	0.506	0.404
SFA-T	0.283	0.215	0.202	0.444	0.205	0.191	0.207	0.268
SFA-E	0.298	0.297	0.148	0.118	0.125	0.121	0.115	0.108

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