Granger Causality Analysis of Profitability and Efficiency in Ukrainian Banking Sector

摘要

The paper aims to evaluate the relationship between profitability and efficiency in the Ukrainian banking sector during the period 2008 - 2017 using Granger causality test. Profitability was estimated by means of two ratios, namely ROA (Return on Assets) and ROE (Return on Equity). For estimation of bank efficiency we used input- and output-oriented technical efficiency measures according to Constant returns to scale (CRS) and Variable returns to scale (VRS) framework in the Data Envelopment Analysis. The usage of VRS approach allowed us additionally to calculate scale efficiency for all banks. Besides, we evaluated the operational efficiency of the banks on the basis of cost-to-income ratio (CIR). We calculated relationship between profitability and efficiency using Granger causality test and correlation coefficient. Of all the pairs of variables that represent profitability and efficiency, the existence of two-sided Granger causality was confirmed only between ROE and the scale efficiency in the DEA-output oriented model. One-way causality was detected between the pair of variables CRS → ROE and ROA → CIR. Interestingly, causality is not detected between all measures of DEA efficiency, whereas the operational effectiveness of CIR has shown a bi-directional causality with VRS -input and -output efficiency measures.