Abstract
The paper investigates into the efficiency of the Slovak banking industry over the years 2000–2011 through the prism of the profit approach to the perception of efficiency of commercial banks. More precisely, the aim of the paper is to benchmark individual commercial banks with respect to their efficiency status under the profit definition of efficiency. Nonetheless, massive structural changes that took place in the Slovak economy also affected significantly the development of the Slovak banking sector and gave rise to shifts in its production function. In order to include these qualitative changes into consideration, the entire period of 12 years was – on economic grounds – divided into three consecutive non-overlapping sub-periods (2000–2003, 2004–2008, 2009–2011) during which the production function may be viewed stable and free of qualitative alterations. A panel of 11 organizational units (i.e. commercial banks) of the Slovak banking sector was identified, and under the assumption of the production function being constant and shiftless in the three sub-periods the data on them were pooled together for each of the three sub-periods. In evaluating their technical efficiency in the individual three sub-periods, a non-parametric method of evaluation is employed based on the slack-based measure (SBM) model of data envelopment analysis. During the period of 12 years examined, Slovenská sporiteľňa maintained a comparatively high SBM technical efficiency and other Slovak banks were subject to positive or negative changes in their comparative efficiency profile. The paper further demonstrates how this information can be used outside the academic sphere with an accent laid upon the stockholders and the management of the commercial banks under investigation.
Highlights
Over recent years, the topic of measuring efficiency of commercial banks has experienced massive upheaval
Viz. the service-oriented approach, the intermediation approach and the profit approach, exclusive attention in the paper is given to the profit approach as the basal “commercial” standpoint under which Slovak banks operate striving after a high profit margin for their owners
The task of efficiency evaluation necessitates the assumption of the existence of a production function in the banking industry and efficiency calculations often base on measuring the distance of individual commercial banks from the production frontier embodied in the production function
Summary
The topic of measuring efficiency of commercial banks has experienced massive upheaval. Three principal approaches have been developed (to say nothing of their modifications) and are used intensively in evaluating efficiency of commercial banks. Whereas the parametric method restricts the production function to a certain parametric form which is estimated, the non-parametric method avoids the formulation of a parametric production function and constructs on some well-understood economic principles the production possibility set. One of these principles is expressed in the technical scalability of operations, to wit, in the specification of the character of returns to scale under which the banking industry operates
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