Frontier Production Function Models for Measuring Banking Efficiency (original) (raw)
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A CONCEPTUAL FRAMEWORK FOR AND SURVEY OF BANKING EFFICIENCY STUDY1
2006
This paper provides a conceptual framework for the banking efficiency study and a survey of the previous banking efficiency literature. The discussions include the concept of efficiency measurement, different types of efficiency, methodology as well as the approaches of input and output variables. The possible bank efficiency determinants or factors that could explain the differences in efficiency of the bank are also discussed. The findings show that no estimation techniques dominate over the other with DEA widely used to measure the technical efficiency while SFA mostly used to measure the cost efficiency. The paper also found that the intermediation approach is the common approach used to decide the appropriate input and output variables.
Purpose -The purpose of this paper is to discuss a comprehensive literature survey of studies focusing on the efficiency and productivity of the banking sector using parametric and non-parametric frontier techniques. Design/methodology/approach -Critically reviewing 106 studies published across the world from 1994 to 2011, a conceptual framework is developed for the studies assessing the efficiency and productivity of the banking industry using non-parametric DEA frontier approach. Findings -Both the frontier approaches, parametric and non-parametric, are gaining an edge over the traditional financial performance measures. In the non-parametric approach, data envelopment analysis (DEA) is widely applied to measure a bank's efficiency and productivity. Studies conducted in developed countries such as the USA, the UK and Europe are now emerging with the new concepts of banking efficiency. Research limitations/implications -These findings are based only on the critical review of 106 studies. This study suggests the direction for future research and identifies the gap in existing literature with the development of a conceptual model. Originality/value -This study is original in nature and included literature published in recent issues of 2011. Efficiency and productivity QRFM 5,2 196 banking industry of developed nations like the USA, the UK, Europe. Developing nations are also gaining attention of researchers as within India only, 24 studies were conducted by the eminent researchers during pre and post liberalization periods of Indian banking sector (Bhattacharyya et al.
Efficiency of banks in a developing economy: The case of India
European Journal of Operational Research, 2003
The objective of this paper is to measure the productive efficiency of banks in a developing country, that is, India. The measurement of efficiency is done using data envelopment analysis. Two models have been constructed to show how efficiency scores vary with change in inputs and outputs. The efficiency scores, for three groups of banks, that is, publicly owned, privately owned and foreign owned, are measured. The study shows that the mean efficiency score of Indian banks compares well with the world mean efficiency score and the efficiency of private sector commercial banks as a group is, paradoxically lower than that of public sector banks and foreign banks in India. The study recommends that the existing policy of reducing non-performing assets and rationalization of staff and branches may be continued to obtain efficiency gains and make the Indian banks internationally competitive which is a declared objective of the Government of India.
Operating efficiency and productivity measurement inTaiwan’s banking industry
Banks and Bank Systems, 2017
While some past studies estimating technical efficiency include undesirable outputs, most treat undesirable outputs as inputs. Such treatment does not, however, reflect the true production process in the banking industry. This paper has two main contributions. The first is that it uses non-performing loans as the undesirable output in assuming weak disposability, which can reflect the true production process in the banking industry. The second is that it applies NL super efficiency and a productivity index from which we can obtain more information regarding the decision units. The results show that most banks exhibit decreasing returns to scale. Large-sized banks need to appropriately adjust their scale of operations, and small-sized banks can improve their pure technical efficiency by re-allocating their input and output resources.
Determinants of Bank Efficiency: Conventional versus Islamic
International Journal of Business and Management, 2013
This study explores the area of bank efficiency with the usage of Stochastic Frontier Analysis. The main objective is to identify determinants affecting conventional and Islamic banks' efficiency, focusing towards banks in Malaysia. Year-end financial data was obtained from a sample of 19 conventional banks and 16 Islamic banks that operate in Malaysia, where these banks' annual reports from the years 2008 until 2011 were referred for the purpose of analysis. An overall view of the results indicates that the levels of profit efficiency for both conventional and Islamic banks in Malaysia were highly similar. Further, it could be observed that efficiency would be better for conventional banks with the increment of bank size and also the decrement of both operational cost and credit risk, while the efficiency for Islamic banks would be better with only the decrement of operational cost.
Measurement of Efficiency of Banks in India
In modern world, performance of banking is more important to stable the economy. In order to see the efficiency of Indian banks we have used four indicators i.e, profitability, productivity, asset quality and financial management for all banks include public, private and foreign banks in India for the period 1999-2000 to 2002-2003. For measuring the efficiency of banks we have adopted DEA (Data Envelopment Analysis) and found that public sector banks are more efficient than other banks operating in India.