The Cost Efficiency Analysis of Commercial Banks in Hong Kong

This research aims to examine the cost efficiency of the top 30 commercial banks, ranked by total assets, in the Hong Kong banking sector over the period of 5 years from 2014 to 2018. Besides, it also provides an insight into the relationship between bank size and cost efficiency. By employing the stochastic frontier approach, this paper chooses three prices as inputs, including the cost of borrowed funds (p1), cost of labour (p2) and Cost of operating expenses (p3); and uses three variables as outputs, namely Gross loans (y1), off-balance sheet items (y2) and other earning assets (y3), respectively. This research found that, on average, the cost efficiency of these selected commercial banks was about 86 percent during the research period. Besides, in the context of the Hong Kong banking system, large banks were found to be less efficient than relatively small banks