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The Analysis of Bank Efficiency in SpainZhang, Kexin1. IntroductionBank efficiency is the contrast between bank input and output in business activities and reflects the efficiency of bank resource allocation, which is an important indicator of bank input or output, market competitiveness and capacity for sustainable development. As for such an important index, the company always pays attention to it to check whether the bank has any problem on the present stage or forecast the tendency of bank’s development. Bank efficiency changes all the time by some factors, such as bank performance, ownership type or business models of the financial intermediaries. So how these factors influence the bank efficiency? Some literature views about this topic will be listed in Section 2, and in Section 3, writer will analyze the data of the bank-level efficiency ratios with Bloomberg to assess the condition of the banks of  Spain as well as the bank performance measures (using ROA as index) and business model of those financial intermediaries, and some assessments will be concluded combined with these data to prove the view of writer. In the end, writer will summary the conclusion in Section 4.2 .Literature viewsAs for the bank performance part, using ROA as an example, it represents that in a period of time, the company uses the total assets of the profits created by the shareholders. This and other ratios of performance measure, such as ROE, are the traditional index to analyze the bank efficiency. The following views are about the result of how performance measure influences the bank efficiency.  JP Bonin, I Hasan, P Wachtel (2002) used the actual data to prove that between the profit efficiency and ROA, there exists a high level of positive correlation. And the correlation between average cost and ROA is negatively, the profit rate of the banks which has higher average cost is lower. Efficiency and ROA have the positive correlations while profit efficiency and average costs have negative correlations.And how to calculate efficiency ratio, David Tennant, Abiodun Folawewo (2009) mentioned that in every country, the total assets of the big three Banks and the traditional efficiency ratios are calculated as the three intermediate Banks reported by Fitch in 2001. The efficiency ratio is defined by the federal financial institution’s review board as Efficiency Ratio= non-interest expense /(Non-interest income + net interest income).This is the most popular ratio to measure bank performance because it is related to on and off the balance sheet (Koch and MacDonald, 2003). ER of the smaller value indicates a higher efficiency, it is often thought of as the ideal – either because at a lower cost provide a given level of the service provider (efficiency), or because the service quality is higher, which requires a higher price market (demand) efficiency.Different countries have different classification of bank ownership. R Cresp, MA Garca-Cestona, V Salas (2004) stated that the banking sector is a regulated industry in Spain, with commercial Banks, savings Banks and credit cooperatives competing in the markets of loans, deposits and financial services. These three types of rules, accounting conventions, external reports, and credit risk management standards are actually the same. Commercial Banks and savings Banks are much more important than cooperatives.The different ownership structure of the bank will have different functions and different degrees of impact on the market and the operation efficiency of the bank itself. So bank ownership is one of the factors to influence the bank efficiency. About the relationship between ownership and efficiency, AL Vivas (1997) explored studies which examined the Spanish savings Banks operating cost of the production frontier, found in their covered by time period, the average (technical) low levels of 19% to 27% and 20% to 27% respectively. By contrast, our estimate of the average cost efficiency of a savings bank is only 11 per cent.Besides,  A Lozano, Vivas . (1998) made a research then got a result that as for commercial banks, operating cost efficiency was lower than that of financial costs during 1985-1991: therefore, interest rate liberalization was not the only reason for commercial Banks’ inefficiency. On average, 14% of commercial Banks were less efficient at operating costs (8 percentage points) and financial cost efficiency (6 percentage points). Savings Banks had a different balance between these two low-efficiency sources, because a total of 11 percentage points of inefficiency was almost entirely composed of low operating costs. As this is a long-time-ago study and less study can be found, I will analyze this with the data of Spanish banks. 3. Analysis and assessmentIn this part, the analysis of the relationship between bank performance and efficiency ratios as well as the relationship between the ownership of the bank and efficiency ratio will be discussed. So we can see that the efficiency ratio is the important index in this essay. So how to calculate efficiency ratio? I use the equation mentioned in Section 2 as ER= non-interest expense /(Non-interest income + net interest income) to compute this ratio using Net Interest Income, Total Non-interest Income and Total Non-interest Expense from Bloomberg.  The higher efficiency ratio means the lower efficiency while the lower ratio represents the higher efficiency.3.1 Performance measures and efficiency ratios A basic index to measure the size of bank profitability is ROA, ROA measures how well the bank manager work because it shows that the degrees of bank assets are used to generate profits. So here I use ROA to represent how well the performance measure in the Spain banks and lists both efficiency ratio and ROA of them in last 10 years as the following table. Table 1. Efficiency and ROA data of 6 banks in Spain in 10 years Banco Santander SABanco de Sabadell SACaixiaBank SABankinter SABankia SABanco Bilbao Vizcaya Argentaria SA Efficiency ratioROAEfficiency ratioROAEfficiency ratioROAEfficiency ratioROAEfficiency ratioROAEfficiency ratioROA20072008- -1.040.90–1.050.86—- –0.760.49——1.340.9620090.64780.830.75730.64–0.58230.47–0.48500.7820100.62970.700.65770.420.4858-0.69040.28–0.53380.8520110.64350.430.61370.230.58820.390.59680.320.7069-0.63420.5220120.62840.180.67500.060.74700.070.54860.211.6925-6.510.59910.2820130.70850.350.64020.090.84170.090.54750.340.68670.150.65140.3720140.62870.490.44040.260.78730.210.54330.490.55660.340.62810.4320150.66970.460.58260.380.81540.240.54930.650.58630.470.68550.3820160.58520.460.61400.340.98720.300.60160.780.55890.410.69820.472017.60.57260.500.54420.350.79420.340.55460.650.47990.440.52670.55 According to this table, 6 charts are made to analyze the data and the relationship between efficiency ratio and bank performance more conveniently.  It is clear that there is a negative relationship between efficiency ratio and ROA, which means that bank efficiency has a positive correlation with performance measure.  Also, we can see that in 2009 and 2012 these 2 years, both index fluctuate wildly, especially in 2012 (because some banks have no data in 2009 so it is hard to judge), ROA decreased to the lowest point then raised even rapidly in some banks such as Banco Santander SA and Bankinter SA. At the same time, efficiency ratios of Bankia SA, Banco de Sabadell SA, and Bankinter SA decrease while other banks prove the stable trend after 2012. 3.2 Bank ownership and efficiency ratiosAs we mentioned before that Spanish banks can be separated into 3 ones:  commercial Banks, savings Banks and credit cooperatives. And commercial banks and saving banks occupy the biggest proportion of all the banks. So I will analyze these two kinds of banks to explain the relationship between bank ownership and efficiency ratio.Table 2. Bank ownership Type and efficiency ratio  efficiency ratioOwnership TypeBank Name2011201220132014201520162017.6Commercial bankBanco Bilbao Vizcaya Argentaria0.630.600.650.630.690.700.53 Banco Santander0.640630.710.630.670.590.57 Banco Popular0.510.580.590.580.580.732.56 Banco Sabadell0.610.680.640.440.580.610.54 Bankinter0.600.550.550.540.550.600.55Saving BankCaixaBank0.590.750.840.790.820.990.79 Bankia0.711.690.690.560.590.560.48 Spain’s Savings Bank went bankrupt in a large number of crises. After the reform of the financial system in 2011, savings banks transformed into commercial banks, or merge with other banks and other changes, and gradually withdraw from the Spanish financial system. The two largest CaixaBank and Bankia commercial banks, La Caixa and Caja Madrid, the largest savings banks in the past, respectively. So here we regard CaixaBank and Bankia as saving banks to analyse.  As we can see in the Table 2, the efficiency ratio of commercial bank is around 0.5-0.7, but as the classic bank of saving, CaixaBank’s efficiency ratio is as high as 0.7-0.9, even 0.99, which reflects that its saving function would bring lower efficiency to its bank compared with commercial bank. On the contrary, after Bankia turned to commercial bank, its efficiency ratio proves a decreasing trend, which from 0.69 to 0.48 in last 5 years.  Commercial banks are the kind of organizations for profit which are controlled by shareholders, performing universal banking services in accordance with reasonable efficiency standards. So their ownership structure is more concentrated. Saving banks just like commercial nonprofit organization, because they must make themselves alive in the competition of deposits and loans, but must be retained profits or allocated to the cultural and social community plan. These functions of commercial banks and saving banks make sense for the phenomenon mentioned before.4. ConclusionThis paper discusses how performance measures and ownership types make the influence to efficiency ratio. As for the former factor, because some ratio such as ROA and ROE, which can measure the company’s performance and profitability, so they can be used to represent bank performance. In this paper, we use ROA to analyze and find that ROA affects the efficiency ratio in a negative direction. In the same time, the lower efficiency ratio means higher bank efficiency, so we can get a result that the ratio of performance measure, such as ROA and ROE, is positively correlated with bank efficiency. Another factor, bank ownership type, also has influence to efficiency ratio. Two types of Spanish banks are explored in this essay: commercial bank and saving bank. Their different ownership structures and functions cause their different efficiency level. In Table 2, we can see that the efficiency ratio of commercial bank is lower than the ratio of saving ones. Here I want to add central bank to compare. The central bank of Spain is Banco de Espana, although bloomberg only offers the data of 2009 which efficiency ratio can be calculated as 0.12, it is obvious enough to see that central bank owns the lowest efficiency ratio compared with other two ownership types. The result in this part is clearly that central bank has the highest efficiency, following as the commercial banks and the efficiency of saving banks is the lowest ones. 5. ReferencesA Lozano, Vivas. (1998) Efficiency and technical change for Spanish banks. Applied Financial Economics, vol. 8, no. 3, pp. 289-300.AL Vivas. (1997) Profit efficiency for Spanish savings banks. European Journal of Operational Research, vol. 98, no. 2, pp. 381-394.David Tennant, Abiodun Folawewo. (2009) Macroeconomic and market determinants of interest rate spreads in low- and middle-income countries. Applied Financial Economics, vol. 19, no.6, pp. 489-507. Giuliano Iannotta, Giacomo Nocera, Andrea Sironi. (2007) Ownership structure, risk and performance in the European banking industry. Journal of Banking and Finance, vol. 31, no.7, pp.2127-2149. I Hasan, P Wachtel. (2002) Cost and profit?efficiency?in European?banks. Journal of International Financial Markets, Institutions and Money, vol. 12, no. 1, pp. 33-58

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