Evaluating the Efficiency of Commercial Banks Using the DEA Method

• Main Author: Blahun Ivan S.
• Format: Article
• Language: English
• Published: Research Centre of Industrial Problems of Development of NAS of Ukraine 2020-11-01
• Series: Bìznes Inform
• Subjects: commercial banks; efficiency of bank performance; financial resources; dea method
• Online Access: https://www.business-inform.net/export_pdf/business-inform-2020-11_0-pages-192_197.pdf

The article examines the application of the DEA (Data Envelopment Analysis) method in assessing the efficiency of commercial banks. This approach does not require knowledge of the efficiency function form. Using empirical input values and results of the financial and banking institutions, we are looking for a weight ratio to maximize efficiency. The article is aimed at evaluating the quality of management of commercial banks using the DEA model. As the methodology was chosen the DEA-modeling, because this method eliminates the problem of heteroscedacticity, which occurs during the parametric modeling. In the methodology of the analysis of the environment of the banks’ operation, commercial bank is considered as an economic unit with specific costs, which, as a result of the implemented activities, are used to generate concrete results. The article develops the principle of extracting information from observations. Thus, compared to the parametric approach dealing with the data averaging within a single regression model, the DEA method allows building up a Pareto-optimal-limit of all solutions, taking into account each individual observation. When analyzing the activities of commercial banks, their assets and the number of employees were selected for research taking into account resources, respectively. On the other hand, the result was the achieved value of deposits, the cost of loans, the number of clients of the bank and the provision of this bank, determined by the solvency coefficient. It is determined that the greatest impact on the results of the research have the size of the received deposits and loans of commercial banks. Measuring the efficiency in this article lies in finding a minimum value of the efficiency ratio, which reduces inputs, but so that the level of the source data remains at the same position. Upon the basis of the research, it can be stated that human resources and assets mostly influence the size of deposits and loans and have a high level of efficiency. Therefore, competition between financial institutions for clients is intensifying.