Cost Efficiency in the Nicaraguan Banking System: A Stochastic Frontier Approach
DOI:
https://doi.org/10.62407/7fkjhz38Keywords:
Cost Efficiency, Banking System, Stochastic Frontiers, Financial Intermediation.Abstract
During 2019–2024, the Nicaraguan banking system experienced a period marked by macroeconomic shocks and a significant reconfiguration of financial intermediation, char acterized by changes in credit dynamics, liquidity accumulation, and asset composition. This setting raises questions about how banks adjusted their cost structures and the extent to which they operated efficiently throughout this process. This study estimates the cost efficiency of the Nicaraguan banking system using a stochastic cost frontier model with a translog specification under the intermediation approach, assuming a half-normal inefficiency distribution estimated by maximum likelihood. The results show that the banking system operated, on average, with high and stable levels of cost efficiency. The observed adjustments in the composition of financial outputs and resource allocation were not as sociated with systematic deviations from the system’s average cost behavior, suggesting a strong capacity for operational adaptation to changing macroeconomic conditions.Downloads
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