Efficiency Level Of Banks Research Articles

Decomposition of efficiency using DEA window analysis

PurposeThe purpose of this paper is to examine empirically the efficiency types of Islamic and conventional banks. It seeks to show whether the efficiency level of conventional and Islamic banks significantly differs from each other. In addition, it investigates the influential factors on each type of efficiency.Design/methodology/approachThe paper utilises the data envelopment analysis in its windows version to estimate the efficiency scores reflecting the time variance and compares between banking models. The paper uses pure technical efficiency (TE) and scale efficiency to achieve the objective of the study. In addition, the panel data technique is adopted to assess the determinants of the efficiency of the banks econometrically.FindingsThe findings of panel regression initially indicate that the pure TE is higher for conventional banks compared to Islamic banks. However, the Islamic banks are more scale efficient than their conventional counterpart. Macro and micro indicators have different impacts on the both types of efficiency. However, the unique factors that show consistent influence on the efficiency types were loans/finance, non-interest income/finance/liquidity and GDP. Furthermore, the determinants are shaped differently for Islamic and conventional banks when the banking model is controlled for.Originality/valueThis paper examines the efficiency types using a unique window analysis approach to examine the types of efficiency with a longitudinal set of data from 1996 to 2011.

Efficiency of Islamic banks and role of governance: empirical evidence

PurposeThe purpose of this paper is to study the efficiency level of Islamic banks, the differences between Islamic banks in the MENA region and Southeast Asia and the role of the governance in improving performance.Design/methodology/approachThis paper examines, on the one hand, the performance of Islamic banks by measuring their efficiency through data envelopment analysis (DEA) method and, on the other hand, the determinants of this efficiency emphasizing on the impact of the governance structure through the panel estimation of Islamic banks based on the three proxies of cost efficiency, namely, technical efficiency (TES), pure technique (PTE) and scale efficiency (SES).FindingsThe findings indicate that Islamic banks are experiencing an improvement in their efficiency cost. The technical efficiency of Islamic banks is largely explained by the scale efficiency where Islamic banks realize large economies of scale in order to achieve optimal size, especially in Malaysia and the GCC countries. Pure technical efficiency is less important than the efficiency of scale and improvement is necessary regarding the managerial performance. In terms of governance, the results show that the board of directors through its size and independence and the presence of a central Sharia board constitute a robust determinant of the Islamic banks’ efficiency. The ownership structure and the size of the Sharia board do no effect banking efficiency.Originality/valueThe originality of this paper lies mainly on the examination of the effect of the governance structure on the Islamic banks’ efficiency where studies on this issue for Islamic banks are almost inexistent. In addition, the size and the diversity of the Islamic banks’ panel constitute the strong point of this study.

Pre-recession efficiencies and input allocation decisions of agricultural and critically insolvent banks

ABSTRACTThe late 2000s’ economic recession is considered the longest economic downturn since the 1930s Great Depression. Declining real estate values ignited an increase in loan defaults and mortgage foreclosures that led to a surge of bank failures at a rate not experienced by the U.S. banking industry since the 1980s. A total of 509 bank failures were recorded by the FDIC from January 2007–December 2014, with nearly 60% of these failures occurring in 2009 and 2010. In contrast, there were only 24 bank failures in the U.S. during the 7-year period prior to 2007. This study analyzed certain components of operating decisions made by banks that either survived or became critically insolvent during the late 2000s financial crisis using an Input Distance Stochastic Frontier function to estimate the technical efficiency (TE) and allocative efficiency (AE) between agricultural banks and non-agricultural banks. This efficiency analysis was applied to a 7-year pre-recession period and is designed to final out any early warning signals that decrease the efficiency level of banks. Results suggest that survival banks were more technically efficient than critically insolvent banks, and banks’ tendency to utilize cheaper inputs were more likely to stand the economic crisis.

Penggunaan Data Envelopment Analysis (DEA) dalam Pengukuran Efisiensi Bank Umum Syari'ah di Indonesia

The purpose of the research is to analayze efficiency level of Sharia Commercial Bank in Indonesia (Bank Mega Syariah, Bank Muamalat Indonesia, Bank Panin Dubai Syariah, Bank BNI Syariah, Bank BRI Syariah, and Bank Syariah Mandiri) 2014-2015 period. Data used in this research is secondary data taken from Financial Statement Publication issued by Otoritas Jasa Keuangan (OJK). This research uses input-output variable with Data Envelopment Analysis (DEA) Method.The result shows the difference of efficiency score for each Sharia Commercial Bank. Based on the calculacy using Data Envelopment Analysis (DEA) Method on BUSN Foreign Exchange of Sharia Commercial Bank in Indonesia only Bank Panin Dubai Syariah that has been succeeded with 100 percent of continuously efficiency during the research. The highest efficiency is experienced by Bank BNI Syariah and BRI Syariah because during the research they experienced inefficiency. During the research Bank Mega Syariah experienced efficiency three times on quarter March 2014, March 2015, and June 2015. Bank Muamalat Indonesia only experienced efficiency twice on quarter March 2014 and March 2015, beside that Bank Muamalat Indonesia experienced inefficiency. Bank Syariah Mandiri experienced efficiency twice on quarter March 2015 and quarter December 2015.

Efficiency versus Maqashid Sharia Index: an Application on Indonesian Islamic Bank

The Development of Islamic Banking Industry in Indonesia relatively shows a good tendency. In the market, inefficiency would be the great obstacles in head to head to conventional bank. Despite of efficiency performance in Islamic Bank, Islamic Bank also must have sharia compliance performance. So it needed to identified the efficiency of Islamic Bank in Indonesia and the achievement of Maslahah in term of three aspects, there are education, the creating of justice, and the attainment of welfare. This study would try to measure the efficiency of Islamic Banking Industry with Data Envelopment Analysis (DEA) method and also to evaluate the performance by using Maqasid Sharia Index (MSI). Banxia Frontier Analyst 3.1 used in the data calculation. The calculation of the level of Islamic Bank efficiency in this study are relative, not absolute. Result of this study indicate four main findings, first, Islamic bank involve in quadran 1 is Islamic bank who reached the highest efficiency and the best performance; there are BMI and Bank Panin Sharia. Islamic bank involve in quadran 2 is Islamic bank who reached the highest efficiency and the lowest performance, there are BSM, Maybank Sharia, and Bank Sharia Bukopin. Islamic bank involve in quadran 3 is Islamic bank who reached the lowest efficiency and have a good performance, there are BRI sharia, and BCA sharia. Islamic bank involve in quadran 4 is Islamic bank who reached the lowest efficiency and the lowest performance, there are Bank Mega Sharia, Victoria Sharia, BNI Sharia, and BJB Sharia.Keywords: Maqasid Index, Efficiency, DEA, Efficiency-Maqasid Quadrant (EMQ)

Economic Freedom, Country Risk and Cost Efficiency in Jordan and the GCC Countries

Using data from 2003 to 2010, we examine the impact of economic freedom and country risks on the bank costs of potential Gulf Cooperation Council (GCC) union. In estimating a common frontier, this article employs Stochastic Frontier Approach (SFA) to control for country-specific variables, that is, economic freedom, country risk, macroeconomic conditions, bank accessibility and bank structure, for an unbalanced panel of 90 Jordanian and the GCC countries’ banks. This article further estimates bank efficiency levels in the potential GCC union member countries to shed some light on the capability and capacity of the banks to compete and survive within the future GCC union. We find that economic freedom helps in reducing potential bank costs. Enhancing economic freedom is crucial for the region to attract more investments and create a viable banking system. In order for the GCC members to have a successful union and achieve the objectives faster, it is important to have a similar level of economic performance, in particular in the banking sector.

Research on the Impact of Internet Finance on the Efficiency of Chinese Commercial Banks

This paper selects 15 Chinese commercial banks as the research sample, using stochastic frontier approach, setting Trans-log Production Function. The paper firstly measures the efficiency of commercial banks, and the results show that the efficiency level of Chinese commercial banks is on the rise from 2007 to 2016, and the efficiency of state-owned banks is higher than that of joint-stock banks. Secondly, the paper studies the influence factors of the efficiency of Chinese commercial banks in the view of banks’ own factors, industry factors, Internet financial development factors. The results show that the non-performing loan ratio level and the Internet financial development are negatively related to the bank efficiency, and competition of market is positively associated with the bank efficiency, and the structure of property rights will also significantly affect the performance of commercial banks.

THE EFFICIENCY ANALYSIS OF INDONESIAN FINANCIAL INSTITUTIONS

This paper investigates the efficiency level of Indonesian commercial banks by using Data Envelope Analysis (DEA). In this paper, we use three inputs and two outputs variables for assessing efficiency and examine the impact of ownership structure such as private, government, foreign, and public. Results revealed that government-owned banks have performed more efficiently than private one; and there is no significant difference of efficiency level between foreign-owned and domestic banks. Total fixed assets is the only significant input factor that affects banks’ efficiency.

ASEAN Banking Efficiency Review Facing Financial Services Liberalization: The Indonesian Perspective

One of the challenges facing banks in the ASEAN region is the plan to establish the ASEAN Banking Integration Framework (ABIF). The main objective of ABIF is to prepare market access and operational flexibility in ASEAN countries to create Qualified ASEAN Banks (QAB), ie ASEAN banks that meet certain requirements agreed by ASEAN. This paper analyzes the level of bank efficiency in ASEAN member countries, taking samples of banks in Indonesia, Malaysia, Singapore, Thailand, Philippines, and Vietnam, using Data Envelopment Analysis (DEA) method, analysis of financial ratios and comparison of research results with different approaches. The results of the analysis show that although the approach of financial ratios and DEA of Indonesian banks appear efficient, but when analyzed from NIM, the Indonesian banking system is inefficient.

Efficiency of banks in Southeast Asia: Indonesia, Malaysia, Philippines and Thailand

Purpose The purpose of this paper is to use the concept of meta-frontiers data envelopment analysis (DEA) to compare the technical efficiencies of banks in selected Southeast Asia countries in the periods of 1998-2012. Design/methodology/approach The authors evaluate bank efficiency in Indonesia, Malaysia, Thailand and the Philippines by means of DEA, and the authors employ a meta-frontiers approach to calculate efficiency scores in a cross-country setting. Findings The analysis shows that even there are some similarities in the process of financial reforms undertaken in the selected countries, the observed efficiency levels of banks vary substantially across the market. Originality/value It is crucial to take into consideration of different technologies in explaining the efficiency differences.

Pemodelan Efisiensi Bank di Indonesia: Perbandingan antara Bank Syariah dan Bank Konvensional

Modeling of Indonesian Banks' Efficiency: Comparative Study Between Islamic Banks and Conventional Banks This study aims to analyze the efficiency comparison between Islamic banks and conventional banks in Indonesia in 2012-2014. The method used in this study is non-parametric approach with data envelopment analysis (DEA) and Panel data regression whereas input and output variables are treated in intermediary function. To measure the efficiency level of Islamic banks and conventional banks the independent sample t test is used. The result of the study shows that there is significant difference of efficiency between Islamic banking and conventional banking in 2012-2014. The empirical factors that affect Islamic banks and Conventional banks efficiency are ROA, CAR, and FDR variables. On the other hand, NPF results insignificantly and affects negatively towards Islamic banks efficiency. Lastly, ROA, NPL, LDR, and CAR had significantly affected Conventional banks efficiency. DOI: 10.15408/ess.v7i2.4989

An Analysis of the Efficiency of the Mauritian Banking Sector Using the Data Envelopment Analysis (DEA)

The purpose of this study is to analyse the efficiency of banks operating in the Mauritian economy through the Data Envelopment Analysis. The DEA methodology has been applied and scores were generated to assess the efficiency levels of Mauritian banks. The study concentrates on 10 sampled banks out of the 22 banks operating in the economy for the period 2011 to 2015.

Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach

This paper assesses the cost and profit efficiency levels of banks consist of conventional, Islamic Shariah based and state-owned commercial banks in Bangladesh over the period of 2011 to 2015. Basic accounting ratios and stochastic cost and profit approaches originated by stochastic frontier analysis have been used in this study. From the results of accounting-based ratios used in this study, conventional private commercial banks are more efficient compared to Islamic Shariah based private commercial banks and state-owned commercial banks in the both cases of cost and profit. According to the stochastic cost frontier approach, the commercial banks in Bangladesh are not found considerable cost inefficient. The cost efficiency level of 35 commercial banks in Bangladesh is 91.4 percent. The results of this study indicate that traditional private commercial banks are more cost efficient compared to Islamic Shariah based and state-owned commercial banks. From the results of stochastic profit efficiency frontier, the conventional private commercial banks have the higher values of alternative profit efficiency levels than the state-owned and Islamic Shariah based commercial banks. It can also be drawn that around one-fourth of profits of banks are lost because of inefficiency over the period covered by this study.

EXAMINING THE RELATIONSHIP BETWEEN RISKS AND EFFICIENCY OF ISLAMIC BANKS IN MALAYSIA

This paper aims to examine the efficiency level of Islamic banks in Malaysia and their relation to credit risk, liquidity risk and operational risk. Twelve Islamic banks were chosen as samples for this study which were taken by the availability of data, through each banks’ annual report from 2008 to 2013. This study was carried by applying the Data Envelopment Analysis (DEA) and Multiple Regression Analysis to achieve its objectives. The finding shows that Islamic banks in Malaysia exhibited a total of 77.1% of overall efficiency of technical (OTE), 83.1% of Pure Technical Efficiency (PTE) and 92.6% of Scale Efficiency (SE). Despite the global financial crisis that occured during the middle year of 2007 to the end of 2009 which slightly affected Asian countries such as Malaysia, nevertheless, Islamic banks seem to be more robust during the crisis than conventional banks. This is because of its basic nature which prohibited interest payments (riba) in all transactions. This study shows that credit risk has a negative significant relationship with efficiency of Islamic banks, while liquidity was found to be positive related to efficiency of Islamic banks. This study also found that the size of the bank has positive significant relationship to efficiency. Finding from this study give contribution to the policy makers and regulators as well as to the managers of Islamic banks by providing empirical evidence on the performance of the Islamic banks in Malaysia towards the efficiency level and risks relationship.

COMPARISON OF EFFICIENCY AND MODELLING OF ISLAMIC BANKS AND CONVENTIONAL BANKS IN INDONESIA

This study aims to analyze the efficiency comparison between Islamic banks and conventional banks in Indonesia in 2012-2014. The data in this study were chosen through purposive sampling from 20 Islamic banks and conventional banks in Indonesia. The method used in this study is non-parametric approach with data envelopment analysis (DEA) whereas input and output variables are treated in intermediary function. The input variables are total asset, total saving (third party fund), and price of labor while the output variables are total financing (loans) and total operational expenses. To measure the efficiency level of Islamic banks and conventional banks the independent sample t test is used.The result of the study shows that there is no significant difference of efficiency between Islamic banking and conventional banking in 2014 because of the significant value (2-tailed) only at 0.537 where P-value is higher than α=0.05 Ha is refused. There is no difference of efficiency between Islamic banks and conventional banks in efficiency scale (ES). The empirical factors that affect Islamic banks and Conventional banks efficiency are ROA, CAR, and FDR variables. On the other hand, NPF results insignificantly and affects negatively towards Islamic banks efficiency. Lastly, ROA, NPL, LDR, and CAR had significantly affected Conventional banks efficiency in Indonesia from 2012 to 2014.

Kajian Efisiensi Bank Umum Syariah di Indonesia

The aim of this study is to measure the efficiency of Islamic Bank in Indonesia and to analyze the factors that affect the level of efficiency. The objects of this study are ten Islamic Bank (BUS) in Indonesia which analyzes from the second quarter of 2012 until the first quarter of 2016. There are three method which are used in this study, two in first stage, namely non parametric method of Data Envelopment Analysis (DEA) and parametric method of Stochastic Frontier Approach (SFA) then the second stage is Tobit estimaton. Overall, the results showed that the efficiency level of Islamic banks in Indonesia during the time period in this study have not reached the optimum level of efficiency yet. Tobit estimation showed that total financing, total wadiah funds, CAR, ROE, total overhead cost significantly affect the Islamic bank`s efficiency in Indonesia.

Competition and efficiency in the MENA banking region: a non-structural DEA approach

ABSTRACTThe goal of this article is to empirically assess the relationship between competition and efficiency in the banking sector of Middle East and North African (MENA) countries spanning the period 1997–2011. To measure the level of competition, the article estimates the non-structural indicator known as the H-statistic, while the level of bank efficiency is estimated through the nonparametric methodology of the Data Envelopment Analysis (DEA) and the Bootstrap Data Envelopment Analysis (BDEA), respectively. The empirical results are robust under six econometric methodologies, providing sufficient evidence for the presence of a one-way (negative) Granger causality, running from efficiency to competition. The empirical findings lead to the rejection of the ‘Efficient Structure Hypothesis’, implying that increases in competition do not precede increases in cost efficiency.

Financial distress and the Malaysian dual baking system: A dynamic slacks approach

This paper presents an efficiency assessment of the Malaysian dual banking system using the Dynamic Slacks Based Model (DSBM) in order to assess the evolution of Malaysian Banks’ potential input–saving/output–increase from 2009 to 2013. More precisely, DSBM is used first in a two-stage approach to assess the relative efficiency of Malaysian Islamic and conventional banks by emulating the CAMEL rating systems. Then, in the second stage, Monte Carlo Markov Chain (MCMC) methods applied to generalized linear mixed models (GLMM) are combined with DSBM results as part of an attempt to produce a model for banking performance assessment with effective predictive ability. Results indicate higher inefficiency levels and slacks in Islamic banks when compared to conventional ones. Furthermore, when the scope of analysis is the group of Malaysian Islamic banks, the efficiency levels of foreign banks are lower compared to their national counterparts, suggesting regulatory and cultural barriers. Policy implications are derived.

Technical Efficiency Levels of Rural Banks (BPRs) in West Java: A Stochastic Frontier Approach

There is considerable evidence from around the world to support the idea that access to formal financial services is a key factor towards achieving poverty alleviation. The government of Indonesia has placed high importance on the issue of improved access to financial services and one feels that it would be appropriate to begin the process of analyzing effective financial inclusion initiatives with the existing Bank Perkreditan Rakyat (BPR) system. BPRs have long been an integral part of Indonesia’s financial, economic, and social development. This research is focused on BPRs in West Java. In this research, the writer evaluates BPR performance within twenty-five districts in West Java, by measuring the technical efficiency levels of the BPRs through employing the Stochastic Frontier Approach (SFA). The district that has the highest BPR average inefficiency score is Bandung city and the district with the lowest average BPR inefficiency score is the district of Ciamis. Increases in bank concentration (indicated by the Hirschman-Herfindahl Index) and income per capita are shown to decrease BPR inefficiency levels. Increases in the percentage of the population under the poverty line, the percentage of the labor force with a high school education, the percentage of road length per area, and the amount of bank offices per district, increase the inefficiency levels of BPRs. Overall, it is found that BPRs cannot operate efficiently in areas which are too underdeveloped; neither can they operate efficiently in areas which are too well developed.AbstrakTerdapat bukti substantif pengalaman berbagai negara di dunia bahwa akses pada jasa finansial formal adalah faktor kunci dalam upaya pengentasan kemiskinan. Pemerintah Republik Indonesia telah menempatkan upaya peningkatan mutu dan akses jasa finansial bagi masyarakat Indonesia, sebagai salah satu kebijakan utama dalam pengentasan kemiskinan. Tulisan ini bertujuan untuk membahas dan menganalisa efektivitas badan-badan penyedia jasa finansial di Indonesia, sebagai starting-point dengan memulai analisa efektivitas jasa finansial yang diberikan oleh Bank Perkreditan Rakyat (BPR). Penelitian ini difokuskan kepada BPR di Jawa Barat. Penulis mengevaluasi performa BPR pada 25 kabupaten/kota di Jawa Barat, dengan mengukur tingkat efisiensi teknis melalui metode Stochastic Frontier Approach (SFA). Kota tempat BPR yang memiliki rata-rata in-efisiensi tertinggi adalah Kota Bandung dan Kabupaten dengan in-efisiensi rata-rata BPR-nya yang terendah adalah Kabupaten Ciamis. Peningkatan dalam konsentrasi perbankan di sebuah kabupaten/kota (terindikasi Hirschman-Herfindahl Index) dan peningkatan pendapatan per kapita pada kabupaten/kota tersebut terbukti menurunkan tingkat inefisiensi BPR. Sebagai kesimpulan utama, ditemukan bahwa BPR tidak dapat beroperasi secara efektif pada area yang sangat underdeveloped dan juga tidak dapat beroperasi efektif pada area yang sangat developed. Kata kunci: Bank Perkreditan Rakyat (BPR); Jawa Barat; Efisiensi Teknis; Stochastic Frontier Approach (SFA)JEL classifications: D; L1; L2; G; G2

Stochastic Frontier Model for Measuring Investment Efficiency of Banks

The study attempts to evaluate the investment efficiency level of online banks and to make a comparison of the investment efficiency scores of banks according to group-wise, year-wise and individually. We used a panel of 20 banks dividing them into four groups namely NBs (National Banks), ISBs (Islamic Banks), FBs (Foreign Banks) and PBs (Private Banks) in Bangladesh. Using Translog stochastic frontier technique we estimated investment efficiencies of those four groups of banks. We observed that there are significant variations of efficiencies across different banks in different time periods. ISBs, FBs and PBs are found inefficient in producing investments. The estimated year wise average efficiency of the sample banks is recorded 0.431 while group wise average efficiency is 0.517. Islamic Banks are observed best performing banks in investment sector. The most investment efficient bank is Islami Bank and the least investment efficient bank is City Bank with efficiency score 0.97 and 0.11, respectively.