Measuring cost efficiency in banking (original) (raw)

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.

Frontier Production Function Models for Measuring Banking Efficiency

International Journal for Research in Applied Science and Engineering Technology

Efficiency across various bank-groups also attempted to examine whether there exists any ownership structured effects in determining bank efficiency. To estimate efficiency of banks, a stochastic frontier production function model is adopted as an exclusive technique of analysis. The results suggested that Total business as a dependent variable, the overall mean efficiencies exhibited for three time periods are 82%, 80% and 84%. Similarly total income as a dependent variable the overall mean efficiencies are 99%, 99% and 87% over the time periods. Among the four ownership bank groups, SBI and its associates, nationalized banks are found quite efficient in the generating outputs, namely total business as well as total income compared to the other ownership groups i.e. private and foreign banks. In generating both the outputs viz. total business and total income, significant improvement in the labour efficiency is noticed as compared to capital efficiency during the three time periods. In the case of total business output variable, labour efficiency improved from 74%

A study of bank efficiency taking into account risk-preferences

Journal of Banking & Finance, 1996

I use the stochastic cost frontier approach to investigate efficiency of banks operating in the Third Federal Reserve District, accounting for the quality and riskiness of bank output. In addition to the mean and mode of the conditional distribution of the one-sided error term, l calculate confidence intervals for the inefficiency measures based on the conditional distribution. The results indicate that Third District banks are operating at cost-efficient output levels and product mixes, but are not efficiently using their inputs. The second part of the article relates the inefficiency measures to several correlates. JEL classification: G2; D2 1 1 + g-rkk In kln k + rkq Ink In q + -~rqq In q In q + ~h~j Ink In ,jr d., J + ~hqj In q In yj + ~t~j In k In w i + ~tqj In q In wj (8) J J J si i=sjiand gij=gjibysymmetry, ~bi=l, Y'~gij=o, vi, J J ~dij = O, V i, Y'~tkj = 0, and ~tqj = 0 by linear homogeneity. J J J

Bank efficiency: Evidence from a panel of European banks

2011

The goal of this paper is to investigate the efficiency of the banking systems in eight European countries over the period 1994 to 2008 by using the production frontier methodology. The paper shows that risk factors along with a size variable should be taken into account, otherwise inefficiency tends to be overstated.

Determinants of Cost Efficiency: Evidence from Banking Sectors in EU Countries

Acta Polytechnica Hungarica, 2019

The purpose of this study was to examine the cost efficiency of banking sectors within the European Union (EU) counties during the period 2008-2017 and to find out which banking sector specific variables and macroeconomic variables influenced cost efficiency. We compared cost efficiency estimated by the traditional model of Data Envelopment Analysis presented by [15] and new cost efficiency model under different unit prices presented by [37] which aimed to make the reader aware of the pros and cons of both methods. Our second stage of analysis included estimation of the regression model in order to find out the determinants of banking sectors´ cost efficiency. Panel data multiple regression was applied to find out the relationship between the depended variable (cost efficiency) and independent variables (banking sector specific variables and macroeconomic variables). Our results showed that cost efficiency was mainly explained by the capitalisation, profitability, loan risk, market structure, conditions of the economy and development of inflation.

Ranking influencing factors on relative efficiency of banking industry

Management Science Letters, 2013

Measuring the relative efficiency of banking industry has been one of the most interesting areas of research for the past few years. There are literally various techniques for measuring the relative performance of similar units such as banks including data envelopment analysis and stochastic frontier analysis. This paper presents an empirical investigation to measure the relative performance of some Iranian banks located in province of Alborz, Iran for two consecutive fiscal years of 2009 and 2010. The proposed study implements stochastic frontier analysis to measure the performance of these banks based on two set of criteria. In the first model, total loans devoted are considered as output and employees, total customers' investment, total fixed assets as well as no-interest deposits are considered as inputs of the model. For the second model, special banks' characteristics such as total economic value of branch, the ratio of fixed assets to total assets, educational backgrounds of employees as well as the level of automation in the system are considered as input parameters of the systems. The results indicate that most bank perform relatively well according to their efficiencies.

Measuring Cost Efficiency Of Ukrainian Banks In 2008

Comparative Economic Research, 2012

The paper presents the results of a stochastic frontier analysis (SFA) of cost-efficiency of Ukrainian banks. As of lack of data on the personnel costs, we had to set limits to the year of 2008 only. To modeling banking activity, we apply the intermediary approach as one of the most commonly used in literature. Considering the results of statistical tests, we chose translog functional form of cost function and half-normal distribution of random inefficiency term. As a result of the research, we found out that efficiency of Ukrainian banks varies within 0.5224 and 0.9869 with an average value of 0.8734. Having checked a range of hypotheses, we discovered insignificant distinctions among banks by their size, type of owner and location.

Measuring bank efficiency: DEA application

Technological and Economic Development of Economy, 2014

The paper aims to improve the methodology of measuring efficiency of Latvian banks. Efficiency scores were calculated with application of non-parametric frontier technique Data Envelopment Analysis (DEA). Input-oriented DEA model under Variable Returns to Scale (VRS) assumption was used. Potential model variables were selected based on the intermediation and profitability approach. Fourteen alternative models with different inputs-outputs combinations were developed for the research purposes. To substantiate the variables selection for DEA model the received data was processed, using such methods, as correlation analysis, linear regression analysis, analysis of mean values, and two-samples Kolmogorov-Smirnov test. The research results assisted the authors in providing general recommendations about the variables selection for DEA application in the Latvian banking sector. The present research contributes to the existing analytical data on bank performance in Latvia. The empirical fin...