The Impact of Bank Specific and Macro Economic Data on Bank Cost Efficiency Category in ASEAN

We study the bank cost efficiency category of banks operating in selected countries of the Association of Southeast Asian Nations (ASEAN): Indonesia, Malaysia, Singapore, Thailand and the Philippines. We classify a bank as efficient one when the cost to income ratio (CIR) below 54% and coded as 1 (efficient bank) and the other coded as 0 (inefficient bank). Second, we regress the cost efficiency category (Dummy) using logistic regression on a set of bank specific variables (size, dummy for crisis, interest rate gap, net interest margin (NIM), capital ratio (CAR), earning asset ratio (EATA) and problem loan (LLRGL) equity to total asset, personnel expenses to total expenses) and economic variables (economic growth and inflation rate. Our results show that bank efficiency category is determined positively by size of assets, net interest margin (NIM), capital strength (CAR) and negatively determined by earning asset composition (EATA) and problem loan (LLRGL). For economic variable, the only inflation rate is significant, but the sign is negative. The result implies that ASEAN banking should continue to consolidate and authority should create a low inflation environment to make their banking industry healthier