TESTING TECHNICAL AND SCALE EFFICIENCY OF KAZAKHBANKS:EVIDENCE BASED ON DATA ENVELOPMENT ANALYSIS

• Main Author: Razzaque H Bhatti
• Format: Article
• Language: English
• Published: Social Sciences Research Society 2013-01-01
• Series: International Journal of Economics and Finance Studies
• Online Access: http://www.sobiad.org/eJOURNALS/journal_IJEF/archieves/2013_1/Razzaque-Bhatti1.pdf

This paper tests technical and scale efficiency of 20 Kazakh banks using annualdata on three inputs (interest expenses, non-interestexpenses and deposits) andthree outputs (interest income, non-interest income and loans) over the period2007-2011. Two input-oriented data envelopment analysis models of Charnes etal (1978) and Banker et al(1984), which are based on constant return to scale andvariable return to scale respectively, areused to evaluate technical efficiency,whereas scale efficiency is computed bydividing the former efficiency ratio bythe latter one. The resultsobtained show that the average efficiency ratios ofindividual banks under constant and variable returns toscale range from 0.88 and1.00 to 0.93 and 1.00 respectively, whereas those of all banks between 0.95 and0.98 respectively. Only are the fivebanks (ATFB, Citibank, HSBC bank,KazInvest bank and Exim bank) the mostefficient banks in Kazakhstan, sincetheir efficiency ratios have been consistently equal to unity, implying that thesebanks operate at their optimal levels. The efficiency scores of the remaining 15banks range from 0.88 to 0.99, and as suchthe majority of these banks do notseem to operate far more below their optimal level. The results indicate that theperformance of the Kazakh banks deteriorated substantially during the globalfinancial crisis of 2008 because theCRS ratio dropped from 0.65 in 2007 to 0.50in 2008 and to 0.40 in 2009. The results alsoconfirm that most of the foreignbanks perform relatively better than domestic banks.