Efficiency measurement of the Greek commercial banks with the use of financial ratios: a data envelopment analysis approach

Abstract

This study offers an application of a non-parametric analytic technique (data envelopment analysis, DEA) in measuring the performance of the Greek banking sector. It explores the efficiency of Greek banks with the use of a number of suggested financial efficiency ratios for the time period 1997–1999. In this way the proposed model offers an empirical reference set for comparing the inefficient banks with the efficient ones. It departs from most frontier studies of bank performance, by using these suggested ratios as output measures and with no use of input measures. The proposed model is compared to the conventionally used input–output analysis as well as to the simple ratio analysis. It is shown that data envelopment analysis can be used as either an alternative or complement to ratio analysis for the evaluation of an organization’s performance. We find that the higher the size of total assets the higher the efficiency. We also find a wide variation in performance and we show that the increase in efficiency is accompanied with a reduction in the number of small banks due to mergers and acquisitions. Finally, from the efficiency results it seems that there is a non-systematic relationship between transfer of ownership and last period’s performance.