Abstract
Abstract Background: During the last four years, the banking sector in Bosnia and Herzegovina has been facing crisis which has caused the stagnation within the sector. Still, the results within the sector vary to a great extent from bank to bank. Objectives: The efficiency score is assessed for each bank and serves as a basis for further comparisons between banks in the period between 2008 and 2010. Methods: A modified model of Data Envelopment Analysis (DEA) has been used in order to combine several financial indicators simultaneously in a unique efficiency measure. The model provides a rounded judgement on a bank's relative efficiency. Results: Efficiency of individual banks varied throughout the observed period and not all of the banks were a part of the negative banking sector trend induced by the crisis. There is no significant difference between performance of banks in different entities of Bosnia and Herzegovina, and between smaller and larger banks. Conclusions: The results of the study can be used by bank managers to assess the performance of their banks, as observing financial ratios separately can result in a misleading conclusion. The most valuable practical implications of the findings are the provided feasible targets for the three observed years.
Highlights
Despite the fact that most of the banks respectively do follow the trends of the banking sector and record a negative orientation of basic business performance indicators, there is still a number of banks with better business results when compared to the previous years (CBBH Annual Report, 2010)
The study focuses on analysing individual business effectiveness of banks in Bosnia and Herzegovina, using financial ratio measures combined with the Data Envelopment Analysis (DEA) method in order to get a better understanding of the banking sector in the country
The main purpose of this study is the analysis and comparison of the efficiency of respective banks in the territory of Bosnia and Herzegovina (BH) by using financial ratio measures combined with the Data Envelopment Analysis (DEA) method
Summary
Despite the fact that most of the banks respectively do follow the trends of the banking sector and record a negative orientation of basic business performance indicators, there is still a number of banks with better business results when compared to the previous years (CBBH Annual Report, 2010). The study focuses on analysing individual business effectiveness of banks in Bosnia and Herzegovina, using financial ratio measures combined with the Data Envelopment Analysis (DEA) method in order to get a better understanding of the banking sector in the country. The main purpose of this study is the analysis and comparison of the efficiency of respective banks in the territory of Bosnia and Herzegovina (BH) by using financial ratio measures combined with the Data Envelopment Analysis (DEA) method. Methods: A modified model of Data Envelopment Analysis (DEA) has been used in order to combine several financial indicators simultaneously in a unique efficiency measure. Results: Efficiency of individual banks varied throughout the observed period and not all of the banks were a part of the negative banking sector trend induced by the crisis. The most valuable practical implications of the findings are the provided feasible targets for the three observed years
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