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Technology Adoption and Banking Efficiency: A Study of Iranian Banks

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  • Tayebeh Farahani
  • Mysam Khansoz

Abstract

This paper shows how useful the e-payment instruments are for modeling and estimating banking efficiency. The study examines the efficiency of Iran banking sector using the data of top 24 government and private banks. To estimate the banking efficiency, DEA model is employed using three inputs (number of ATMs and POS, bank size, and index of market concentration) and three outputs (return on assets, return on equity, and mean value of e-payment transactions). The findings reveal that five biggest banks (Melli, Mellat, Saderat, Tejarat, and Sepah) are more efficient in VRS model compared to CRS model because of better operating conditions. The empirical results show that the average level of overall technical efficiency is 78% in VRS model and 31% in CRS model, suggesting that Iranian banks could have increased their outputs by 22% with the existing level of inputs. These results also indicate that specialized state banks are more efficient than large banks.

Suggested Citation

  • Tayebeh Farahani & Mysam Khansoz, 2014. "Technology Adoption and Banking Efficiency: A Study of Iranian Banks," The IUP Journal of Bank Management, IUP Publications, vol. 0(1), pages 29-37, February.
    • Handle: RePEc:icf:icfjbm:v:13:y:2014:i:1:p:29-37
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