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The Relative Efficiency of Saudi Banks: Data Envelopment Analysis Models

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  • Mohammad Abdelkarim Almumani

    (King Saud University-RCC)

Abstract

The purpose of this study is to measure the relative efficiency of banks in Saudi Arabia using a basic DEA models like CCR and BCR. Also, it investigated the determinants of such efficiency in terms of bank size and capitalization. The duration of the measured performance of the Saudi banking sector is (2007-2011). The results indicate that, on a relative scale, Saudi banks were efficient in the management of their financial resources. In addition, it was found that efficiency score of the selected banks is high and stable over time and the management of the banks consistently improved their efficiency during the period. Another important result is that the relative efficiency of Saudi smaller banks significantly outperforms much better than medium and larger size banks. However, banks with higher capital adequacy ratio are less efficient. Thus, banks in Saudi Arabia with higher capital adequacy ratio are less risky, managing safer and lower-earning portfolios. This study provides a starting point for further investigation and validation into the efficiency of the Saudi banking sector; also it can provide important information for policy makers as for the openness of Saudi new banks. Therefore, more investigation with alternative models are required.

Suggested Citation

  • Mohammad Abdelkarim Almumani, 2013. "The Relative Efficiency of Saudi Banks: Data Envelopment Analysis Models," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(3), pages 152-161, July.
  • Handle: RePEc:hur:ijaraf:v:3:y:2013:i:3:p:152-161
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    References listed on IDEAS

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    1. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    2. Mohd Mahmoud Ajlouni & Mohammad Waleed Hmedat & Waleed Hmedat, 2011. "The Relative Efficiency of Jordanian Banks and its Determinants Using Data Envelopment Analysis," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 1(3), pages 1-3.
    3. Saeed Al‐Muharrami, 2009. "The competition and market structure in the Saudi Arabia banking," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 36(5), pages 446-460, September.
    4. Mohamad Akbar Noor & Nor Hayati Bt Ahmad, 2012. "The Determinants of Efficiency of Islamic Banks," The IUP Journal of Bank Management, IUP Publications, vol. 0(2), pages 32-61, May.
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    Cited by:

    1. Clements Adeyinka Akinsoyinu, 2015. "Efficiency Evaluation of European Financial Cooperative Sector. A Data Envelopment Analysis Approach," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(4), pages 11-21, October.
    2. Işıl EREM, 2017. "The Relationship Between Corporate Governance Compliance Ratings And Financial Performance: An Investigation On Banks Listed In Borsa Istanbul Corporate Governance Index," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 6(1), pages 1-42, January.
    3. Imran Khokhar & Mehboob ul Hassan & Muhammad Nauman Khan & Md Fouad Bin Amin, 2020. "Investigating the Efficiency of GCC Banking Sector: An Empirical Comparison of Islamic and Conventional Banks," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(1), pages 220-235, January.

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