Title: Measuring the operating efficiency of domestic banks with DEA

Authors: Kuen-Horng Lu, Min-Li Yang, Feng-Kai Hsiao, Hsin-Yi Lin

Addresses: Department of Asia-Pacific Industrial and Business Management, National University of Kaohsiung, No. 700, Kaohsiung University Road, Nan Tzu District, Kaohsiung 811, Taiwan, ROC. ' Department of Business Administration, National Kaohsiung University of Applied Sciences, Kaohsiung, Taiwan, ROC. ' Department of Human Resource Development, National Kaohsiung University of Applied Sciences, Kaohsiung 811, Taiwan, ROC. ' Department of Human Resource Development, National Kaohsiung University of Applied Sciences, Kaohsiung 811, Taiwan, ROC

Abstract: This study employed the CCR model of Data Envelopment Analysis (DEA) and the slack variable analysis to evaluate the operating efficiency of the domestic banks in Taiwan from 1998 to 2004. The operating efficiency of domestic banks was measured using interest expenses, fixed assets, deposits and number of employees as input variables. Interest income, non-interest income, investments and loans were used as the output variables. The results revealed significant differences in the average of fixed assets, deposits and loans between the high and low efficiency groups. This study found that the Non-Performing Loans/Gross Loans (NPL/GL) ratio of the high efficiency group is significantly lower than that of the low efficiency group. This study also found room for improvement in non-interest income and investments in each year and made suggestions for banks to adjust all the variables in order to enhance their overall operating efficiency.

Keywords: domestic banks; operating efficiency; data envelopment analysis; DEA; slack variable analysis; Taiwan; banking industry; business performance management.

DOI: 10.1504/IJBPM.2007.011494

International Journal of Business Performance Management, 2007 Vol.9 No.1, pp.22 - 42

Published online: 01 Dec 2006 *

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