Portuguese Banks Efficiency: A Data Envelopment Analysis

Abstract

This paper analyses the determinants of Portuguese Banking efficiency using a sample of 45 banks from 2005 to 2019. Simar and Wilson's two-stage approach [1] has been applied. Data envelopment analysis (DEA) was used in the first stage to estimate efficiency scores. In the second stage, a truncated regression was estimated with a double bootstrap to test the significance of the relationship between bank efficiency and its determinants.The results obtained indicate that, in general, Portuguese banking shows good levels of pure technical efficiency but poor results in scale efficiency, thus deteriorating the levels of total technical efficiency. After a decrease in total technical efficiency between 2005 and 2011, from 2012 onwards, it shows a positive trend. Our results also show that larger banks, better-capitalised, more profitable, with less credit risk and less diversified sources of income, are the most efficient.These results have implications for public policies adopted by the government and regulated by the competent authorities for the sector studied. Namely, creating large, well-capitalized banks should be promoted, preventing excess credit risk.