Technical Efficiency Of Banks Research Articles

Does Efficiency Bring Down Default Risk in Indian Banks?

Banks are an integral part of a nation’s economy. Therefore, soundness of a bank’s financial health is foremost important for the good economic condition of the country. This article proposes to assess the bank efficiency (BE) and default risk (DR) of banks in India, and to examine the link between BE and DR of banks in India. This study uses the secondary data of 34 banks operating in India for the period from 2016 to 2019 for panel data analysis. BE as technical efficiency of banks and their DR are evaluated using data envelopment analysis and Altman’s Z-score, respectively. The findings of the study indicate no significant association between BE and DR of banks in India. This article is a novel study of its kind and provides surprising result, which indicates encouraging outcome for banks in India. JEL Codes: G30, G33, G38

Evaluating bank technical efficiency in SADC region

Efficiency is generally defined as the capacity to deliver desirable results with little effort or input. A bank cannot afford to allocate limited resources at random in a competitive market. Only once the efficiency factors have been identified can resources be allocated in a conscious and effective manner. The study investigates the determinants of technical efficiency of banks in the SADC region. The study is significant in the SADC region as the block is trying to create a robust and stable banking system. This is driven by the desire to stay away from the current global financial system volatility and the region is working to develop an integrated banking system. The results show that the banks are relatively inefficient with the level of inefficiency around 40 percent. The efficiency of the banks is determined by the level of capitalisation, size of the bank, research costs and automation of the banks. The results of the study imply that that there is great scope for the banks in the SADC region to increase their efficiency. Improved efficiency will ensure banks provide services at a lower cost to clients. The study recommends adequately capitalizing banks, increasing the asset base of the banks, investing in research and the automation of the banking systems.

The Effect of Banking Competition and Efficiency on Banking Performance Moderated by GCG and Crisis Factors

The aim of this research is to test the influence of the level of competition on bank profitability, bank efficiency on bank profitability, test the relationship between competition and bank efficiency and company performance using ROA as a measure of performance, while GCG and the crisis period due to the pandemic are used as moderating variables for this relationship. . Testing of this research uses the multiple regression analysis method with the help of the SPSS version 21 program. The results of this research show that competition is a variable that has a positive and significant influence on banking performance. The greater competitive ability of banks will improve their performance. However, the bank's technical efficiency has not shown significant results. The moderating effect of implementing GCG by banks does not seem to be able to improve the relationship between competition and performance. The same results were also obtained on the relationship between bank efficiency and performance which also cannot be moderated by GCG. The moderating effect of the crisis period was found to be significant on the relationship between competition and bank performance, whereas during the crisis the relationship between competition and bank performance remained low. However, bank efficiency was not moderated by the crisis period resulting from the pandemic.

Bank efficiency and undesirable output: An analysis of non-performing loans in the Brazilian banking sector

This study aims to analyze the impact of non-performing loans (NPLs) on the technical efficiency of banks in the Brazilian banking sector and to identify determinants of bank efficiency. The Directional Distance Function (DDF) method is used to measure banks’ technical efficiency and identify the factors that affect it. The results show that NPLs negatively impact efficiency, compromising banking operations and reducing the ability to produce new loans, affecting profitability. From 2003 to 2019, foreign banks were, on average, more efficient than domestic public and private banks. During COVID-19 (2020–2022), federal public banks were the most efficient. The analysis also suggests that the low efficiency of domestic public banks is associated with the lower technical quality of state public banks. The practical implications of this study are that banks must manage their NPLs effectively to improve their efficiency and profitability. This study's originality lies in analyzing the determinants of bank efficiency in Brazil, which can help banks improve their efficiency and performance.

Assessing the Determinants of Efficiency: An Empirical Evidence from Developing Economy

Increasing banks' efficiency may help boost the country's economic activity. This study aims to focus on the Pakistani bank’s technical efficiency over the period 2014 to 2019. The study adopts the non-parametric estimation technique based on the output-oriented CCR model to measure banks' technical efficiency scores. The obtained results revealed that the six banks from 30 that remain technically efficient in the sample period from 2014-2019 were Bank Alfalah Ltd, CITI Bank NA Pakistan, Habib Metropolitan Bank Ltd, Industrial Development Bank, MCB Bank Ltd and Samba Bank Ltd. So, other banks should follow the efficient utilization of resources as these banks are utilizing and set as a benchmark of Technical Efficiency. From the results of GMM, it is concluded that the firm-specific determinants that have a significant negative effect on technical efficiency in the case of Pakistan are leverage. In contrast, profitability and solvency have a significant positive impact on the technical efficiency of banks. However, bank size and liquidity are found to be insignificant. Among the macroeconomic variables, GDP has a significant positive impact, whereas interest rate and regulatory quality have a significant negative effect on the technical efficiency of banks in Pakistan. However, political stability was found to be insignificant. The findings of this study have important policy implications for regulators and managers by focusing on the minimal utilization of input and by maximizing output through better management of resources like fixed assets, labor, operating expenses, deposits, and equity. To maximize the outcomes of the banks that are an investment, net profit, loans, other earning assets, and non-interest income, banks can maximize their technical efficiency. Secondly, the banking efficiency could also be enhanced through firm-specific and macroeconomic variables.

A Comparative Analysis of the Banking Sector Performance in India: Two-Stage Analysis

The objective of this paper is to analyse comparatively the technical efficiency of each commercial bank with the latest data source. The present study applied the input-oriented DEA model to assess the performance of the banking sector and further investigated the determinants of banks efficiency employed by both OLS and Logit models. The results of DEA showed that the public and domestic private sectors banks were more efficient than foreign sector banks in India over the period of study. The estimated results of the OLS and Logit models indicated that the coefficients of LR, ROA and BS had a positive effect on the bank technical efficiency and were statistically significant. The finding of the present study will be helpful for the policymakers, owners of the banks and governments to take appropriate strategies to yield the desired efficiency.

Technical efficiency in the Ghanaian banking sector: does boardroom gender diversity matter?

PurposeThe marginalization of women on boards is a heavily discussed topic across the world, especially in Ghana. Apart from estimating the link between boardroom gender diversity and technical efficiency of banks, this study aims to test the presence of upper echelons theory in the Ghanaian banking sector.Design/methodology/approachThe study examines data from 2000 to 2019 annual reports of 23 banks in Ghana. The stochastic frontier analysis is used to estimate the impact of boardroom gender diversity on technical efficiency of banks in Ghana.FindingsThis study finds that greater boardroom gender diversity generates technical efficiencies for banks. The results remain unchanged after accounting for bank types (listed and non-listed). Thus, all banks benefit in terms of technical efficiency from more boardroom gender diversity. The upper echelons theory is validated in the Ghanaian banking context. Overall, the study supports pro-gender diversity on boards.Practical implicationsThe results have implications at corporate, social and national levels. It supports the need for policies that improve greater boardroom gender diversity.Originality/valueThis study adds to a growing number of non-developed countries by investigating the link between the boardroom gender diversity and technical efficiency of banks in Ghana, a country which historically has had minimal female participation in the workforce. New insight is, therefore, offered into this relationship by using data which examines the technical efficiency of banks periods before and after the Women in Finance Charter in 2016.

TECHNICAL EFFICIENCY OF ISLAMIC BANKS IN SELECTED AFRICAN COUNTRIES

The size of banking market for Islamic banks in Africa is relatively small. This poses serious threat to the level of competition with conventional ones unless they are technically efficient. Unfortunately, available evidences have shown that Islamic banks in Africa are technically inefficient, though no consensus have been reached on the source(s) of such inefficiency. Therefore this study investigated the technical efficiency of Islamic banks in Africa with particular emphasis pure technical and scale efficiencies. Convenient sampling technique was used to select a sample of 36 Islamic banks for eight (8) years from 2012 to 2019. Data were collected for input and output variables from annual reports of the banks. Data Envelopment Analysis (DEA) was used to analyse the data by estimating the efficiency scores for the banks. The efficiency scores of 0.764 (ar<1), 0.850 (ar<1) and 0.896 (ar<1) for OTE, PTE and SE respectively indicate that on average, the selected banks were technically inefficient. The study concluded that Islamic banks in Africa were technically inefficient due mainly to pure technical inefficiencies such as poor managerial performance. The study then recommended employment and training of staff with requisite skills and knowledge of Islamic banking and finance, to enhance managerial performance and boost their technical efficiency of the banks.

BANK TECHNICAL EFFICIENCY, PURE TECHNICAL EFFICIENCY AND SCALE EFFICIENCY, DOES ECONOMIC FREEDOM MATTER? EVIDENCE FROM CENTRAL EUROPE

The current study attempts to investigate the impact of the limitation of economic freedom on conventional bank technical efficiency and its components (pure technical efficiency and scale efficiency) by using data from the region of central Europe. Non-parametric Data Envelopment Analysis (DEA) is employed to measure the bank's technical efficiency and its components levels. The applied method of estimation consists of “pooled Ordinary Least Square (OLS), Fixed Effect Model (FEM), Random Effect Model (REM), and the Generalized Method of Moments (GMM)” to investigate the influence of economic freedom and other potential determinants on bank efficiency. This study has found that the indicators of Government Spending, Fiscal Health, Business Freedom, Labor Freedom, and Financial Freedom have positive relationships with bank’s technical efficiency, pure technical efficiency, and scale efficiency. Contrariwise, Overall Economic Freedom, Monetary Freedom, and Investment Freedom exhibit a negative impact on a bank’s technical efficiency and its components. Implications from the study permit the related parties to identify the significant dimensions of economic freedom to the efficiency of the banks to ensure better bank performance.

What explains the technical efficiency of banks in Tunisia? Evidence from a two-stage data envelopment analysis

In this study we examine the potential determinants of technical efficiency for the Tunisian commercial banking sector over the period of 1995–2017. First, we estimate banking technical efficiency with a radial and non-radial bootstrap data envelopment analysis. For the radial technique, we use an input-oriented approach and for non-radial we use the Range Adjusted Measure (RAM). Second, we use a double bootstrapping regression technique to estimate the influence of a set of eventual determinants on technical efficiency. Finally, based on all possible regressions, we gauge the overall effect of each determinant. Our results reveal that the input-oriented and RAM approach gave somewhat similar results. We found that the return on equity, the expense to income ratio, the loan to deposit ratio, and the growth rate are insignificant to Tunisian banking technical efficiency. In particular, banking technical efficiency increases with capitalization and inflation, whereas, it decreases with size, number of bank branches, management to staff ratio, and loan to asset ratio. In addition, we identified evidence supporting the moderate success of the last decade of reforms and a noticeable one for the post-revolution reforms in helping improve banking technical efficiency. The post-revolution reforms, largely revolving around reinforcing the rules of good governance and banking supervision, coupled with the restructuring of public banks, were found to be insufficient to raise overall banking technical efficiency despite improvement in the technical efficiency of private banks.

Measuring technical efficiency associated with environmental investment: does market competition and risk matters in banking sector.

This paper investigates the impact of several comprehensive risks such as credit risk, capital risk, liquidity risk, and insolvency risks on Pakistani banks' technical efficiency to assess the nexus between environmental investments with technical efficiency of banks. It also probes into the effect of competition among the Pakistani banks on technical efficiency. The data envelopment analysis (DEA) CCR and BCC models are used to estimate technical, purely technical, and scale efficiencies of the Pakistani banks. The Lerner index measures the banking competition. For estimation, the bootstrap truncated regression is used as an econometric technique. The robustness of results is cross-checked by using an alternative econometric technique (fractional logit regression) and an alternative competition measure (Boone indicator). The study revealed that capital risk has a positive impact on scale efficiency and insolvency risk has a negative impact on technical and pure technical efficiencies. Similarly, there is a positive significant relationship between technical efficiency and environmental investment. Furthermore, the competition has a significant negative effect on Pakistani banks' technical and pure technical efficiencies. The results suggest that the efficiency of the Pakistani banks is significantly affected by bank size, taxation, diversification, operational cost management, banking development, trade openness, and infrastructure development, which ultimately promotes environmental efficiency and protection. The comparative study indicates that the state-owned banks have higher technical, pure technical, and scale efficiencies than the private, foreign, and Islamic banks.

Role of public sector banks towards financial inclusion during pre and post introduction of PMJDY: a study on efficiency review

Purpose An inclusive financial system is essential to develop the country’s economy. A massive shift in financial inclusion was observed by the initiative of government to include financially excluded into the formal financial system by launching Pradhan Mantri Jan Dhan Yojana (PMJDY) in 2014. This paper aims to attempt to examine the efficiency of public sector banks in financial inclusion during pre and post introduction of PMJDY. Design/methodology/approach The data envelopment analysis is used to measure the efficiency of the banks towards financial inclusion for the periods, 2010–2011 to 2013–2014 as pre-introduction and 2014–2015 to 2017–2018 as post-introduction phase. For this study, supply-side parameters of financial inclusion considered as input variables and demand-side parameters as output variables. Findings The study finds that overall average efficiency towards financial inclusion increases significantly during post-phase, though all the public sector banks are not performing equally. There is a significant variation in efficiency level between them and even between the two periods. Further, there is a huge opportunity to enhance technical efficiency with the same quantity of input which will help to achieve the target of financial inclusion. Originality/value A comparative study between the two phases has taken place to analyse the impact of the scheme on the technical efficiency of banks. One of the notable innovativeness of this study is that, unlike most of the previous studies which are mostly theoretical and conceptual, the present study may place itself as a unique inquiry in the domain of efficiency review of public sector banks during pre and post introduction of PMJDY.

Technical and Scale Efficiency of Banks in Georgia. Using Data Envelopment Analysis (DEA)

This paper uses data envelopment analysis (DEA) to analyze the efficiency of the Georgian commercial banks from 2011 to 2018 years. Paper analyses the scale and technical efficiency of banks. The results show that banks efficiencies are not much changed in sample years, average efficiency is 0.67 while scale efficiency is 0.877. The results also reveal the input excess and output shortfalls. Banks in Georgia has highly input excess compared to results in other findings.

Technical and Scale Efficiency of Banks in Georgia. Using Data Envelopment Analysis (DEA)

This paper uses data envelopment analysis (DEA) to analyze the efficiency of the Georgian commercial banks from 2011 to 2018 years. Paper analyses the scale and technical efficiency of banks. The results show that banks efficiencies are not much changed in sample years, average efficiency is 0.67 while scale efficiency is 0.877. The results also reveal the input excess and output shortfalls. Banks in Georgia has highly input excess compared to results in other findings.

Intellectual capital and technical efficiency of banks in an emerging market: a slack-based measure

PurposeThis paper investigates the impact of intellectual capital and its components on slack-based technical efficiency (SBM-TE) of banks.Design/methodology/approachData envelopment analysis is used to compute SBM-TE scores and the Value-Added Intellectual Coefficient (VAIC™) model is used to measure intellectual capital. An unbalanced panel of 32 banks that operated from 2000 to 2017 has been used.FindingsOverall, the efficiency scores are averaged at 79%, suggesting that an inefficient bank needs to enhance technical efficiency by 21% to be at par with the best performing banks. Beta-convergence and sigma-convergence exist among banks with faster speed evident among listed and local banks. Intellectual capital has a positive impact on SBM-TE and human capital is the main driver of technical efficiency among banks. This result is specifically evident among non-listed banks and foreign banks. Economies of scale property are also evident among the banks. Competition and asset tangibility inhibit technical efficiency among banks.Practical implicationsBanks are advised to invest in value-adding emerging technologies and their employees so as to enhance their efficiency. The study offers insights for policymakers, practitioners and researchers in emerging markets.Originality/valueThe study is premier in employing the SBM-TE to explain the intellectual capital and efficiency nexus, as well as, testing for both beta-convergence and sigma-convergence.

Evolution of the Efficiency of Nationwide Commercial Banks in China Based on an SBM-Undesirable Model and DEA Window Analysis

In recent years, Chinese economic development has slowed down and competition in the financial industry has become increasingly fierce. The purpose of this paper is to study the efficiency characteristics of China’s banking industry in the new environment and provide suggestions for banks to improve efficiency. This paper uses a data envelopment analysis (DEA) SBM-undesirable model and window analysis to measure the technical efficiency of 13 nationwide commercial banks in China during the period from 2008 to 2017. Furthermore, the convergence characteristics of bank technical efficiency are examined. The empirical results show that state-owned banks were more efficient than joint stock banks before 2012. After 2012, state-owned banks were less efficient than joint stock banks. Finally, this paper explores the influential factors of technical efficiency. Noninterest income ratio, net interest margin, growth rate of total investment in fixed assets, and consumer price index have a significant positive impact on bank efficiency. The cost-to-income ratio has a significant negative impact on bank efficiency. Further research using the threshold model shows that noninterest income ratio has a threshold effect on bank efficiency.

A Novel MIMIC-Style Model of European Bank Technical Efficiency and Productivity Growth

Using Bayesian Monte Carlo methods, we augment a stochastic distance function measure of bank efficiency and productivity growth with indicators of capitalization, return and risk. Our novel Multiple Indicator-Multiple Cause (MIMIC) style model generates more precise estimates of policy relevant parameters such as returns to scale, technical inefficiency, and productivity growth. We find considerable variation in the performance of EU-15 banks over the period 2008-2015. For the vast majority of banks, productivity growth – the sum of efficiency and technical changes - is negative, implying that the industry would benefit from innovation. We show that greater technical efficiency is associated with higher profitability, higher capital, a lower probability of default and lower return volatility.

An Evaluation of the Technical Efficiency of the Selected Commercial Banks with the Usage of the CCR-DEA Model under the Conditions of Acquisitions in the Banking Sector

<p>The aim of this article is to evaluate the technical efficiency of the chosen commercial banks, which in the years 2014–2016 were participants in acquisitions in the banking sector, with the usage of the Data Envelopment Analysis (DEA) model. The DEA model was modified through reshaping the linear form using the Charnes, Cooper, and Rhodes (CCR) model, which is aimed at expenditures. Particular attention was paid to the impact of acquisitions in the banking sector on the improvement or deterioration of the technical efficiency of banks that act as acquiring banks.</p>

IS THE EFFICIENCY OF BANKS DEGENERATING DUE TO THE MOUNTING OF NON-PERFORMING ASSETS? AN EMPIRICAL INVESTIGATION USING DEA

Indian banking system is saddled with bad loans which have resulted in huge losses. Profitability remains a concern due to the rise of NPAs. Investors should not expect high reporting profits from banks due to the ascending provision of the NPAs. Banks are not performing well and they may not be much efficient due to the rise of NPAs daily. Using data envelopment analysis, the present study intends to assess technical efficiency of banks. As the requirement of homogeneity is fulfilled, the input oriented CCR model is applied. The study finds that the number of efficient banks has shortened and the average overall technical efficiency of selected banks moves downward throughout the study period. It also reveals that the inefficiency is mostly due to the upward trend of NPAs. Asset quality plays the most crucial role toward the performance of banking sector. Thus, banks and regulators should control the upward trend of NPAs to enhance the efficiency level.

Role of Bank Regulation on Bank Performance: Evidence from Asia-Pacific Commercial Banks

The banking industry is an essential financial intermediary, thus the efficient operation of banks is vital for economic development and social welfare. However, the 2008 global financial crisis triggered a reconsideration of the banking systems, as well as the role of government intervention. The literature has paid little attention to the banking industry in the Asia-Pacific region in the context of bank efficiency. This study employs double bootstrap data envelopment analysis to measure bank efficiency and examine the relationship between regulation, supervision, and state ownership in commercial banks in the Asia-Pacific region for the period 2005 to 2014. Our results indicate that excluding off-balance sheet activities in efficiency estimations lead to underestimating of the pure technical efficiency, while overestimating the scale efficiency of banks in the Asia-Pacific region. Cross-country comparisons reveal that Australian banks exhibit the highest levels of technical efficiency, while Indonesian banks exhibit the lowest average. Our bootstrap regression results suggest that bank regulation and supervision are positively related to bank technical efficiency, while state ownership is not significantly related to bank efficiency. Furthermore, our findings show that tighter regulation and supervision are significantly related to higher efficiency for small and large-sized banks.