The Impact of Regional Economic Conditions on the Efficiency of Saving Banks in the Light of Demographic Change

This paper examines the influence of environmental factors on the technical and revenue efficiency of German savings banks. It employs a two-step approach, using, first, data envelopment analysis to calculate efficiency and, second, multivariate regressions to examine the influence of regional economic conditions on efficiency. Taking into account demographic change with growing regional disparities in economic wealth and population, it differentiates between declining and growing regions and finds that regional factors explain 10-20% of the variation in efficiency levels. Competitive pressure is the most important environmental factor affecting efficiency, consistent with the quiet life hypothesis. Higher population density and branch penetration enhance efficiency in growing regions while, in declining regions, a greater percentage of older people reduces bank efficiency. Demographic changes through population aging and migration from poor to rich regions impair the efficiency of banks in declining, peripheral regions. Our results show that the public mission of providing financial services to all regions has its costs in terms of efficiency losses. On the other hand, the regional principle of the savings banks sector guarantees competition between banking groups in most regions, which has the largest impact on efficiency.