CROATIAN BANKING AND INSURANCE INDUSTRY: OVERVIEW OF COST EFFICIENCY PERFORMANCE AFTER ACCESSION TO THE EUROPEAN UNION

This paper analyses Croatian banking and insurance industry cost efficiency in the period just before and after Croatia's accession to the European Union. The objective of this research is to determine the existence of interdependence between the results of different efficiency measurement approaches and in various financial industry areas. For that purpose, efficiency is measured by using Data Envelopment Analysis (DEA) methodology. DEA is a specific nonparametric linear programming methodology used for testing the efficiency in numerous areas, including the financial sector. In this research, the main focus is on the banking and insurance sectors as holders of 75% of the total assets of the Croatian financial industry. In that sense, the main purpose of this research is to obtain a more precise conclusion about the efficiency of the Croatian financial industry in the period following the accession of the Republic of Croatia to the European Union in 2013 and determine how this fact consequently impacted said efficiency. For banks, expenses as input data and income as output data are used; for insurance companies, claims incurred, net operating expenses, and investment costs are used as input data in addition to earned premiums and investment income data as output data. The analysis is conducted on pooled data for the period from 2012 to 2018 on the sample of Croatian banks and insurance companies operating within it. However, the period observed was somewhat challenging in doing business and business performance, as well as in many other ways, due to the fact that Croatia experienced a prolonged recession in the period following the onset of the latest financial crisis of 2008. Consequently, research results obtained herein could be a valuable source of information for better understanding of business performance in the financial sector in times of dynamic and unstable financial or macroeconomic environment, simultaneously with changing legal and other conditions.