Nodira Abdunazarova - The role of banks in the regional economic development of Uzbekistan - lessons from the German experience

From Graph 6 one can see the existence of the cost-to-income ratio gap between the big banks and small banks in Germany.

Graph 6

Cost-to-income ratio in different bank groups (%)

Source: Deutsche Bundesbank, die Ertragslage der deutschen Kreditinstitute

Due to a lack of data, we cannot calculate this indicator for Uzbekistan's banks, but the similar pattern from Graph 6 can be seen in less developed countries as well. According to a number of studies on cost-efficiency in developing and developed countries, there is a non-linear U-shaped relationship between the bank size and its efficiency (Karray & Chichti, 2013; Aleskerov, Belousova, Ovcharov, & Solodkov, 2009; Golovan, Kostyurina, Pastukhova, Karminsky, & Peresetsky, 2007; Srivastava, 1999; Berger, Hanweck, & Humphrey, 1987; Mester, 1992; Clark, 1996). It should be suggested that there is an optimal efficiency point up to which cost efficiency increases alongside bank size. However, after passing this point the cost efficiency declines. The larger the bank is, the less effective it becomes. Together, these studies outline that large banks may have low profit inefficiency.

In this section, it has been explained that according to the main indicators, the German banks tend to work actively in the old federal states with a high income, such as Bayern, Baden-Württemberg, and Nordrhein-Westfalen. The savings banks and cooperative banks have higher shares of credit in most of the new or east federal states in comparison with the branches of the large banks. From the beginning the main goals of the regional banks were helping the poor, depositing money, and getting affordable credit. The cost-to-income ratio of the German banks reveals the similarity to the other countries' pattern of cost efficiency when large banks perform less effectively than smaller banks.

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