Research on the Efficiency of Commercial Banks in China: Based on Two-Stage FDH Method

Abstract

The evaluation of bank efficiency is the premise and guidance of high-quality development of the banking industry. On the basis of the existing research on bank efficiency, the operation process of banks is divided into two stages of saving collection and making profits. Based on the conditions of free disposal and the assumption of intermediate connection, the two-stage FDH Production Possibility Set is constructed, and then we build the two-stage FDH model. This model can not only avoid the inconsistency of the estimator of DEA method due to strict assumption but also improve the resolution of the traditional FDH .The efficiency of 57 commercial banks in China from 2013 to 2017 was calculated by using the traditional FDH and two-stage FDH method. The results show that compared with the traditional FDH method, the two-stage FDH method has a great improvement on the resolution to the bank, and can get the benchmark based on the real subsystem of the evaluated bank, and excavate the information of further improving the bank efficiency. The results also show that state-owned banks are more efficient than joint-stock banks, and the efficiency of these two is significantly higher than that of city commercial banks and rural commercial banks.