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Measuring the operating efficiency of domestic banks with DEA

Author

Listed:
  • Kuen-Horng Lu
  • Min-Li Yang
  • Feng-Kai Hsiao
  • Hsin-Yi Lin

Abstract

This study employed the CCR model of Data Envelopment Analysis (DEA) and the slack variable analysis to evaluate the operating efficiency of the domestic banks in Taiwan from 1998 to 2004. The operating efficiency of domestic banks was measured using interest expenses, fixed assets, deposits and number of employees as input variables. Interest income, non-interest income, investments and loans were used as the output variables. The results revealed significant differences in the average of fixed assets, deposits and loans between the high and low efficiency groups. This study found that the Non-Performing Loans/Gross Loans (NPL/GL) ratio of the high efficiency group is significantly lower than that of the low efficiency group. This study also found room for improvement in non-interest income and investments in each year and made suggestions for banks to adjust all the variables in order to enhance their overall operating efficiency.

Suggested Citation

  • Kuen-Horng Lu & Min-Li Yang & Feng-Kai Hsiao & Hsin-Yi Lin, 2007. "Measuring the operating efficiency of domestic banks with DEA," International Journal of Business Performance Management, Inderscience Enterprises Ltd, vol. 9(1), pages 22-42.
    • Handle: RePEc:ids:ijbpma:v:9:y:2007:i:1:p:22-42
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    Citations

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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. Kashif Rashid & Adeela Rustam, 2014. "Comparative Analysis of Local and Foreign Banks Efficiency: A Case Study of Pakistan," Oeconomics of Knowledge, Saphira Publishing House, vol. 6(3), pages 7-52, August.
    3. Meng Lin, 2022. "The Conflict between Technology and Scale: Evidence from China’s Wooden Furniture Industry," Sustainability, MDPI, vol. 15(1), pages 1-15, December.

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