Abstract
Since the beginning of the application of the Data Envelopment Analysis (DEA) model in various areas of the economy, it has found its wide application in the field of finance, more specifically banks, in the last few years. The focus of this research was to determine the sustainability of the intermediate function of banks, especially in recent years when interest rates on deposits have been at a minimum level. The research was divided into two parts, wherein the first part determined the efficiency of the intermediate function of banks in the countries of the Western Balkans in the period from 2015 to 2019. The second part approached the regression analysis in which we determined the influence of the bank size, type of bank, and mergers and acquisitions (M&A) activity on the defined efficiency. In the first stage we applied the output-oriented DEA model using deposits, labor costs, and capital as input variables; on the other side, we used loans and investments as output variables. We used data from the revised financial statements of the banks operating in Serbia, Bosnia and Herzegovina, Montenegro, North Macedonia, and Albania. The results of our study showed that there is a difference in efficiency levels between countries and within countries in the considered time period. Furthermore, Tobit regression analysis showed a significant and negative influence of the bank type and M&A on relative technical efficiency of banks, and a positive and significant relationship between bank size and relative efficiency. These findings suggest that large commercial banks can sustain on the West Balkan market. It is to be expected that less efficient small banks will be taken over by large and more efficient banks.
Highlights
The banking institutions have to apply more effort and be more efficient to make their role as intermediaries sustainable
In the second stage of the analysis, we focused on the causes of the different levels of bank efficiencies using Tobit regression analysis
The results obtained from the output-oriented Data Envelopment Analysis (DEA) model with a variable return to scale are shown in Figure 2 and Appendix A Table A1
Summary
The interest rates paid on deposits have been declining to the point of becoming symbolic. These negative interest rates are influencing the banks’ operations in several ways [1]. Banks’ deposit potential could be reduced as well as the loan potential which is generated by the deposit potential. Banks can avoid the decline of their profit by making more efficient placements with the available sources. In these conditions, the banking institutions have to apply more effort and be more efficient to make their role as intermediaries sustainable
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