APPLICATION OF PARAMETRIC BENCHMARKING METHOD - STOCHASTIC FRONTIER ANALYSIS IN COST EFFICIENCY ESTIMATION OF THE BANKING SECTOR

This paper deals with the application of parametric benchmarking method - Stochastic Frontier Analysis (SFA) in measuring cost efficiency of Slovak banks. The Slovak banking environment has significantly transformed as a result of various economic changes in recent years. Due to these extensive changes banking sector becomes very competitive branch whereby increase the significance of its performance evaluation and its financial conditions monitoring. The efficiency measuring and relative efficiency comparison of banks are crucial questions for analysts as well as for economic policy creators. Having applied Stochastic Frontier Analysis to an unbalanced panel of Slovak banks we focus on cost efficiency estimation over period 2000-2007. In our analysis have been applied two versions of stochastic frontier cost function models. The differences in estimated scores, parameters and ranking of banks are compared across different panel data models.