Cost and Profit Efficiency of the Malaysian Commercial Banks: A Comparison between Domestic and Foreign Banks

Abstract

This study examines the relative efficiency levels of domestic and foreign commercial banks in Malaysia between 2000 and 2006, using accounting-based ratio, stochastic cost and profit frontier approach. Using accounting-based ratio, the results suggest that interest margin and operating cost are slightly higher for domestic banks than for foreign banks. Further, the results also suggest that profit ratios are slightly higher for foreign banks relative to domestic banks. Using the stochastic frontier approach, the results indicate that domestic banks are found to be more cost-efficient but less profit - efficient relative to foreign banks.

Keywords: Efficiency, accounting-based ratios, stochastic cost and profit frontier approach, Malaysia