Measuring Thai financial institutions efficiency and the impact of foreign ownership

Abstract

This study aims to investigate the efficiency in Thai financial sector before and after the financial crisis (1994 – 2003) by looking at the production and intermediation processes. Furthermore, the study also investigates the efficiency in commercial bank sector, finance company sector and life-insurance company sector, and the efficiency in domestic and foreign financial companies. Based on the sample of 12 commercial banks, 8 finance companies and 24 insurance companies over the period of 1995 – 2003. Our finding reveals that the efficiency in Thai financial sector, commercial bank sector and finance and Life-insurance company sector were mixed over the period of 1994 – 2003. The efficiency of banking sector on intermediation had improved after the new foreign participation rules were implemented while the efficiency was diminishing for the production model and both models reveal that foreign banks outperformed the domestic banks. In addition, the efficiency of finance companies on both models improved after the ownership restriction been removed, while the efficiency was decreasing in 2002-2003 when the foreign company entered the market. And foreign company outperformed domestic in intermediation model but underperformed in its production model. Finally, the study also suggests that, efficiency score for life-insurance was diminishing over the entire period while domestic-owned insurers outperformed their foreign companies.