An empirical study on measuring operating efficiency and profitability of bank branches (original) (raw)
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Assessing Efficiency of Bank Branches: An Application of Data Envelopment Analysis (DEA)
In recent years, considerable emphasis has been given to the determination of the efficiency of public and private organisations and service units using the Data Envelopment Analysis Method (DEA). The method evaluates the relative efficiency of the units under scrutiny. It compares branches objectively to identify the best-practice branches, the less productive branches, and the changes the less productive branches need to make in order to reach the best operating level and to improve their profitability. Bank management finds the DEA results provide meaningful insights not available from other techniques that focus on ways to improve productivity whilist the ability to model both quantitative and qualitative factors in its structure extends the usefulness of the method. This study is concerned with the assessment of the efficiency from a sample of thirty-nine bank branches of the “Commercial Bank” of Greece. The results have evidenced the disparities in efficiency which exist betwe...
The aim of this study is to develop a performance model for measuring the relative efficiency and potential improvement capabilities of bank branches by identifying their strengths and weaknesses. Another purpose is to investigate the production and profitability aspects of branches. Under both production and profitability approaches, efficiency characteristics of branches, which are grouped according to different sizes and regions, have similar tendencies. In both analyses, it is apparent that branch size and scale efficiency are related to each other. As branch size increases scale efficiency increases too and after the most productive scale size, however, as size increases efficiency decreases. Too small and too large branches need special attention. Putting production and profit efficiency scores on two scales reveals the performing characteristics of branches. Each region needs different handling. Branches with low production-low profit efficiency should be evolved towards high production-high profit efficiency region.
Efficiency Measurement in branch bank service with data envelopment analysis
Banking is a competitive market since the industry deregulated. Consumers' demand for convenience services led to an increase in the number of branches to serve a geographically dispersed customer base. Increasing the number of branches indiscriminately is not advisable since more branches increase the cost structure for the bank. Banking executives can evaluate the relative efficiency of branches, segments, and markets using analytical tools such as DEA. This research assists the branch manager with understanding the efficiency of branches and segments using two alternative intermediation models and a profit model. The results show that large markets are more efficient than small or rural markets, and large segments are generally more efficient than small market segments. The methodology employed in this study allows branch managers to proactively work to improve efficiency and control costs by adjusting inputs within the manager's control, whether efficiency is measured based on profit models or the intermediation models.
A new two-stage data envelopment analysis (DEA) model for evaluating the branch performance of banks
AFRICAN JOURNAL OF BUSINESS MANAGEMENT, 2012
The purpose of this paper is to provide a framework for evaluating the overall performance of bank branches in terms of profitability efficiency and effectiveness by means of a two stage data envelopment analysis (DEA) model. DEA is a linear programming problem approach for evaluating efficiency of decision making units (DMU) that have multiple inputs and outputs. In this paper, we use a two stage DEA model for efficiency evaluation of DMUs. In the two stage model all the outputs from the first stage are the only inputs to the second stage, in addition to the inputs to the first stage and the outputs from the second stage. The outputs from the first stage to the second stage are called intermediate measures. Many papers have regressed non parametric estimate of efficiency in the two stage DEA procedure. All of these studies have several problems in the benchmark or projection unit and present the DMU with relative efficiency. Most of these papers do not present an efficient benchmark unit and cannot evaluate the relative efficiency unit. In this paper we review these studies and then create a two stage model that does not have these problems. Our model presents the efficient benchmark unit and also presents DMU with relative efficiency. In the next step we apply our two stage model in bank branches of a large commercial bank in Iran. This study aggregates profitability efficiency and effectiveness into the overall performance. Some relations between profitability efficiency and effectiveness are very important. Without these relations we cannot obtain superior insight about overall performance. So we assume that profitability efficiency and effectiveness are dependent, and with this assumption we design a two stage DEA model. This study shows the importance of profitability efficiency and effectiveness in the overall performance in bank branches in Iran.
The evaluation of bank branch performance using data envelopment analysis
The Journal of High Technology Management Research, 2002
The existing studies on efficiency evaluation of bank branches using a data envelopment analysis (DEA) technique have not considered intangible aspects associated with resource inputs in the branches. The intangible aspects of resource inputs in a branch characterize the effectiveness of service delivery system in supporting efficient and quality service delivery to external customers. In order to fill this gap, this paper develops a framework for incorporating this aspect into a DEA framework in the form of internal service quality. This paper also suggests the simultaneous benchmarking of the performance of bank branches along multiple dimensions using a modified DEA formulation. The dimensions of performance considered are internal service quality, operating efficiency, and profitability.
The evaluation of bank branch performance using data envelopment analysis: A framework
2002
The existing studies on efficiency evaluation of bank branches using a data envelopment analysis (DEA) technique have not considered intangible aspects associated with resource inputs in the branches. The intangible aspects of resource inputs in a branch characterize the effectiveness of service delivery system in supporting efficient and quality service delivery to external customers. In order to fill this gap, this paper develops a framework for incorporating this aspect into a DEA framework in the form of internal service quality. This paper also suggests the simultaneous benchmarking of the performance of bank branches along multiple dimensions using a modified DEA formulation. The dimensions of performance considered are internal service quality, operating efficiency, and profitability.
International Journal of Business, Economics and Management, 2016
Objective: This paper provides a survey of efficiency in banks using Data Envelopment Analysis (DEA) in developed and developing countries. Methods: There are two ways were used; the first one is analyse previous reviews, and the other one is systemic search from ProQuest, Emerald, Scopus and Science Direct. The search conducted to identify efficiency in banks in developed and developing countries. Originality: This study contributes in the existing literature in measuring efficiency in banks using DEA as a non-parametric technique. Results: Studies that was survey showed that the score of allocative efficiency was more than technical and cost efficiencies. Also, Studies showed that the scores of cost efficiency were more than the scores of profit efficiency. Conclusion: This paper shows that most of these studies were conducted in developed countries context, Also many studies were in developing countries. But, very few studies were conducted in the context of banking industry in Arab countries.
AN APPLICATION OF DATA ENVELOPMENT ANALYSIS IN BANK BRANCHES: A CASE STUDY
AN APPLICATION OF DATA ENVELOPMENT ANALYSIS IN BANK BRANCHES: A CASE STUDY., 2018
DEA is a linear programming technique that measuring the relative efficiency of a fairly homogeneous set of decision-making units (DMUs) and use of multiple inputs and outputs. DEA is an important tool for evaluating and improving the efficiency of manufacturing and service operations. It has been widely used for performance appraisal and benchmarking. DEA has ability to answer these questions “Which are the benchmarked branches?” and “What are the potential improvements for the inefficient branches?”. To measure the technical efficiency, two basic models of DEA are used under the satisfactory assumptions. The appropriate assumptions are used in the model and the mathematical background, characteristics of DEA models and results are presented in the analysis. The new results are comparing to the bank’s current situation and validating the use of the proposed DEA models for evaluating the technical efficiency. The process of generating and interpreting relative efficiency scores and potential improvements is discussed and proper idea is given for managers. This article is evaluated the branch efficiencies and potential improvements of the one of large commercial bank in North Western Province in Sri Lanka at the financial year 2018.
Data Envelopment Analysis: A Tool of Measuring Efficiency in Banking Sector
International Journal of Economics and Financial Issues, 2016
The present paper examined the review of literature related to measuring relative efficiency of banks using data envelopment analysis (DEA). The efficiency of banks is measure through the ability of the individual bank to maximise output given a certain level of input. By measuring its efficiency, it can serves as early warning or benchmark of its performance and it can define future improvement in various area such as managerial, technology or socio-economic. DEA is comprises of two basic model that are DEA Charnes-Cooper-Rhodes model with constant return to scale assumption and DEA Banker-Charnes-Cooper model with variable return to scale assumption. In banking industry, DEA is using two approaches that are production or intermediation approach. The former highlights banks as delivering services in the form of transaction and the later assumes banks intermediate funds between surplus units to deficit unit. The study of efficiency in banks with similar economic and political condit...
iaeme, 2013
The following research article discusses the technique to measure the technical efficiency of Decision Making Units(DMUs). Efficiency means to measure how well the DMUs are doing given the circumstance & inputs. Decision Making Units are similar enterprises ranging from publically held companies , Privately owned corporation, Banks, Non-profit organization, airports etc. There are many ways to calculate efficiency of DMUs. This research paper will focus on the Banking sector. Financial Ratios is one of leading methods to calculate efficiency of Banks. Liquidity, profitability, & leverage position of the enterprises are calculated to understand the ranking of various Banks. Data envelopment Analysis technique is the latest methodology to benchmark performance of Banks. Data envelopment Analysis is a non-parametric approach used through linear programming to decide efficiency of similar enterprises. The following research paper discusses the various studies conducted by authors using both financial ratios& DEA. The article also discusses research work carried out by authors on Data Envelopment Analysis, specifically.