The assessment of cost efficiency in the Portuguese banking sector between 2012 and 2019, based on the estimation of a cost frontier, shows that there is room for efficiency gains, similarly to what is observed in the European banking system. Considering the time period above referred to, the estimation of a cost function allows for the conclusion that the Portuguese banks could have maintained their production incurring only in 84% of their observed costs. 

Total factor productivity increased 4,9% between 2012 and 2019, posting relevant positive changes in the first years. However, it slowed down throughout the period, reaching negative values in the last two years. Technological progress has been the main driver for the total factor productivity growth, particularly in the beginning of the period under analysis, with an annual average contribution of 0,3 pp over the period comprised between 2011 and 2019. Furthermore, changes in scale efficiency also contributed positively to total factor productivity change in 2013 and 2014 due to the existence of scale diseconomies in conjunction with the strong deleveraging registered after the sovereign debt crisis. In turn, the annual average contribution of variations in cost efficiency to the annual total factor productivity change amounted to 0,2 pp.

For more details see Ribeiro, Nuno e Inês Tavares (2021), “Revisiting Portuguese Banks’ Efficiency and Productivity”, Economic Studies, Banco de Portugal, Vol. VII, Nº4, October.

Prepared by Nuno Ribeiro e Inês Tavares. The opinions expressed herein are those of the authors and do not necessarily coincide with those of Banco de Portugal or the Eurosystem.

If you want to receive an e-mail whenever a new “Economics in a picture” is published send your request to info@bportugal.pt.