EMPIRICAL ANALYSIS OF THE EFFICIENCY OF THE BANKING SECTOR IN WESTERN BALKAN COUNTRIES

Abstract

There is no doubt that financial intermediation plays a crucial role in the economy of both developed and developing countries. At the same time, the banking sector represents the leading financial intermediary through which developing countries can enhance or boost economic growth in their country. In addition, importance is given to the profitability and efficiency of the banking sector for fulfilling such macroeconomic objectives of the country. In this regard, the main objective of this study is to analyze the efficiency of the banking sector of Western Balkans countries by utilizing secondary data collected from the official reports of the National Banks of the respective countries for the period 2004 – 2020. Thus, Data Envelopment Analysis was implemented to analyze the efficiency of the banks in Western Balkan for the period 2004 – 2020. Moreover, DEA results conclude that banks in Western Balkans operate at a good efficiency level due to an average score above 85% from 2004 – 2020. Montenegro had a continuous high-efficiency score during the last five years, followed by Serbia, Bosnia and Herzegovina, Kosovo, Albania, and North Macedonia. Due to the results of the efficiency of the banking sector of the Western Balkans and the specific analysis of the Republic of North Macedonia case, specific policy recommendations are given in this regard to enhance the higher efficiency of the banks in the Republic of North Macedonia.