Evaluating performance and efficiency of Asian banks

Abstract

The aim of this paper is to examine the performance and efficiency changes of commercial banks in Japan and Taiwan. Banks in both countries operate in similar environments: nationally oriented with protected domestic banking market. Data envelopment analysis (DEA) is applied to a panel of 6 nationwide banks in Japan and 12 in Taiwan between 2006 and 2011 and utilizes a Malmquist index to measure the relative importance of productivity changes. In this mode, five input variables (i.e., number of branches, number of employee per branch, share in total assets, share in total loans, and share in total deposits) and five output variables (i.e., ROA, ROE, net interest income/total assets, net interest income/total operating income, and non-interest income/total assets) are utilized. The results indicated that 2008 financial crisis did profoundly impact performance for commercial banks in Taiwan in terms of TE, SE and TFP, but did not seem to have great impact on the TE and TFP for commercial banks in Japan. It is found that the relative importance of productivity changes decline after 2008 financial crisis for Taiwanese group. However, Japanese group shows slight affects in terms of technical change and total factor productivity (TFP) change. These findings suggest that there is still some catching-up for the inefficient banks in Japan and Taiwan to be more competitive with the intention of facing a more globalized competition after 2008 financial crisis.