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External Two Stage DEA Analysis of Bank Efficiency in West Balkan Countries

Author

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  • Nada Milenković

    (Faculty of Economics in Subotica, University of Novi Sad, 24000 Subotica, Serbia)

  • Boris Radovanov

    (Faculty of Economics in Subotica, University of Novi Sad, 24000 Subotica, Serbia)

  • Branimir Kalaš

    (Faculty of Economics in Subotica, University of Novi Sad, 24000 Subotica, Serbia)

  • Aleksandra Marcikić Horvat

    (Faculty of Economics in Subotica, University of Novi Sad, 24000 Subotica, Serbia)

Abstract

Since the beginning of the application of the Data Envelopment Analysis (DEA) model in various areas of the economy, it has found its wide application in the field of finance, more specifically banks, in the last few years. The focus of this research was to determine the sustainability of the intermediate function of banks, especially in recent years when interest rates on deposits have been at a minimum level. The research was divided into two parts, wherein the first part determined the efficiency of the intermediate function of banks in the countries of the Western Balkans in the period from 2015 to 2019. The second part approached the regression analysis in which we determined the influence of the bank size, type of bank, and mergers and acquisitions (M&A) activity on the defined efficiency. In the first stage we applied the output-oriented DEA model using deposits, labor costs, and capital as input variables; on the other side, we used loans and investments as output variables. We used data from the revised financial statements of the banks operating in Serbia, Bosnia and Herzegovina, Montenegro, North Macedonia, and Albania. The results of our study showed that there is a difference in efficiency levels between countries and within countries in the considered time period. Furthermore, Tobit regression analysis showed a significant and negative influence of the bank type and M&A on relative technical efficiency of banks, and a positive and significant relationship between bank size and relative efficiency. These findings suggest that large commercial banks can sustain on the West Balkan market. It is to be expected that less efficient small banks will be taken over by large and more efficient banks.

Suggested Citation

  • Nada Milenković & Boris Radovanov & Branimir Kalaš & Aleksandra Marcikić Horvat, 2022. "External Two Stage DEA Analysis of Bank Efficiency in West Balkan Countries," Sustainability, MDPI, vol. 14(2), pages 1-16, January.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:2:p:978-:d:725774
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    References listed on IDEAS

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    1. Holod, Dmytro & Lewis, Herbert F., 2011. "Resolving the deposit dilemma: A new DEA bank efficiency model," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2801-2810, November.
    2. Chen, Xiaogang & Skully, Michael & Brown, Kym, 2005. "Banking efficiency in China: Application of DEA to pre- and post-deregulation eras: 1993-2000," China Economic Review, Elsevier, vol. 16(3), pages 229-245.
    3. Barros, Carlos P. & Chen, Zhongfei & Liang, Qi Bin & Peypoch, Nicolas, 2011. "Technical efficiency in the Chinese banking sector," Economic Modelling, Elsevier, vol. 28(5), pages 2083-2089, September.
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    Cited by:

    1. Aleksandra Marcikić Horvat & Nada Milenković & Branislav Dudić & Branimir Kalaš & Boris Radovanov & Alexandra Mittelman, 2022. "Evaluating Bank Efficiency in the West Balkan Countries Using Data Envelopment Analysis," Mathematics, MDPI, vol. 11(1), pages 1-15, December.
    2. Boris Radovanov & Nada Milenković & Branimir Kalaš & Aleksandra Marcikić Horvat, 2023. "Do the Same Determinants Affect Banks’ Profitability and Liquidity? Evidence from West Balkan Countries Using a Panel Data Regression Analysis," Mathematics, MDPI, vol. 11(19), pages 1-20, September.
    3. So Young Sohn & Yonghan Ju, 2023. "Mission Efficiency Analysis of For-Profit Microfinance Institutions with Categorical Output Variables," Sustainability, MDPI, vol. 15(3), pages 1-12, February.
    4. Min Li & Nan Zhu & Kai He & Minghui Li, 2022. "Operational Efficiency Evaluation of Chinese Internet Banks: Two-Stage Network DEA Approach," Sustainability, MDPI, vol. 14(21), pages 1-18, October.
    5. Clement Olalekan Olaniyi & Titus Ayobami Ojeyinka & Xuan Vinh Vo & Mamdouh Abdulaziz Saleh Al‐Faryan, 2023. "Do business strategies vary across firms in the banking industry? New perspectives from the bank size–profitability nexus," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 525-544, January.
    6. Rania Pasha, 2024. "Bank intermediation efficiency and liquidity risk in Egypt: a two-stage non-parametric analyses," Future Business Journal, Springer, vol. 10(1), pages 1-16, December.

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