Efficiency Analysis of Banking Sector in Presence of Undesirable Factors Using Data Envelopment Analysis

الموضوعات :

Fatemeh Bozorgi Gerdvisheh ¹ ( Department of Industrial Management, Rasht Branch, Islamic Azad University, Rasht, Iran )
Mansour Soufi ² ( Department of Industrial Management, Rasht Branch, Islamic Azad University, Rasht, Iran )
Alireza Amirteimoori ³ ( Department of Applied Mathematics, Rasht Branch, Islamic Azad University, Rasht, Iran )
Mahdi Homayounfar ⁴ ( Department of Industrial Management, Rasht Branch, Islamic Azad University, Rasht, Iran )

تاريخ الإرسال : 16 الأربعاء , جمادى الثانية, 1443 تاريخ التأكيد : 22 الأربعاء , رجب, 1443 تاريخ الإصدار : 11 الإثنين , شوال, 1444

الکلمات المفتاحية: undesirable Factors, Efficiency, profitability, Banking Sector,

ملخص المقالة :

Banks play an important role in the growth and development of any economy. A profitable banking system enhances economic stability and efficiency to mitigate the impacts of sudden macroeconomic shocks. To be more efficient and profitable, banks need to recognize the factors underpinning their performance. Accrued liabilities are one of the factors that hinder the profitability of banks. There are several methods to assess banks' profitability with their own pros and cons. Among them, data envelopment analysis (DEA) has been recommended as one of the most common approaches to evaluate different efficiencies including cost efficiency, revenue efficiency, technical efficiency, and finally profitability. The availability of prices/weights of inputs and outputs provides financial managers with significant information for evaluating efficiencies and assists them in decision-making and strategy development processes. This study mainly aims to analyze banks' profitability by considering accrued liabilities resulting from undesirable factors, for which relevant data were collected from 33 branches of a commercial bank in Gilan province, Iran based on managerial and weak disposability. The results illustrated that only three branches were graded one in three dimensions of efficiency, namely technical, cost and revenue, and profitability. Besides, it was suggested that the lack of these efficiencies was not correlated with the branches' profitability.

المصادر:

[1] Ahmad, R., Koh, E., Shaharuddin, S., Determinants of bank profitability: a comparative study of East Asia and Latin America, Int. J. Banking, Accounting and Finance, 2016, 7(1), P. 34–51.

 

[2] Ali, M., Puah, C. H., The internal determinants of bank profitability and stability, Management Research Review, 2018, 42(1), P. 49–67. Doi:10.1108/MRR-04-2017-0103.

 

[3] Almaqtari, F. A., Al-Homaidi, E. A., Tabash, M. I., Farhan, N. H, The determinants of profitability of Indian commercial banks: A panel data approach, International Journal of Finance & Economics, 2019, 24(1), P.168– 185. Doi:10.1002/ijfe.1655.

 

[4] Amirteimoori, A., Toloie-Eshlaghi, A, Homayoonfar, M., Efficiency measurement in Two-Stage network structures considering undesirable outputs, International Journal of Industrial Mathematics, 2014, 6(1), P. 65-71.

 

[5] Amirteimoori, A., Kordrostami, S., Khoshandam, L., Multi-dimensional non-discretionary factors in production processes: a data envelopment analysis, IMA Journal of Management Mathematics Advance Access, 2014, 25 (4), P. 435-448. Doi:10.1093/imaman/dpt021.

 

[6] Assaf, G. A., Barros, C. P., Matousek, R., Technical efficiency in Saudi banks, Expert Systems with Applications, 2011, 38(5), P. 5781–5786.

 

[7] BAL, H., SÖNMEZER, S., Determinants of the profitability banking sector in turkey, Doğuş Üniversitesi Dergisi, 2022, 23(1), P. 243-254.

 

[8] Batten J., Vo, X.V., Determinants of Bank Profitability Evidence from Vietnam, Emerging Markets Finance and Trade, 2019, 55(6), P. 1417–1428. Doi: 10.1080/1540496X.2018.1524326.

 

[9] Bhatia, V., Basu, S., Mitra, S.K. and Dash, P., A review of bank efficiency and productivity, OPSEARCH, 2018, 55(3–4), P. 557–600.

 

[10] Bekhet. H. A., Mohammad, A, A., Khudari, M., Effects of Internal and External Factors on Profitability of Jordanian Commercial Banks: Panel Data Approach, International Journal of Financial Research, 2020, 11(5), Doi: 10.5430/ijfr.v11n5p359.

 

[11] Bongini, P., Cucinelli, D., Battista, M. L. Di, Nieri, L., Profitability shocks and recovery in time of crisis evidence from European banks, Finance Research Letters, 2018, 30, P. 233-239. Doi:10.1016/j.frl.2018.10.00.

 

 [12] Bucevska, V., Misheva, B., the Determinants of Profitability in the Banking Industry: Empirical Research on Selected Balkan Countries. Eastern European Economics, 2017, 55(2), P. 1–22. Doi: 10.1080/00128775.2016.1260473.

 

[13] Camanho, A. S., Dyson, R. G., Cost efficiency measurement with price uncertainty:  a DEA application to bank branch assessments, European Journal of Operational Research, 2008, 161, P. 432–446.

 

[14] Cooper, W., Seiford, L.M., Tone, K, Data Envelopment Analysis, A Comprehensive Text with Models, Applications, References and DEA-Solver Software Second Edition by Springer Science Business Media, LLC, 2007.

 

[15] Dq, T., Ngo, T., The determinants of bank profitability: A cross-country analysis, Central Bank Review Journal, 2020, 20, P. 65–73. Doi:10.1016/j.cbrev.2020.04.001.

 

[16] Ercegovac, R., Klinac, I., Zdrilić, I., Bank Specific Determinants of EU Banks Profitability after 2007 Financial Crisis, Journal of Contemporary Management Issues, 2020, 25(1), P. 89–102. Doi:10.30924/mjcmi.25.1.5.

 

[17] Fidanoski, F., Choudhry, M., Davidovic, M., Sergi, B., What does affect profitability of banks in Croatia? Competitiveness Review, An International Business Journal, 2018, 28(4), P. 338–367.

 

[18] Gaganis, C, Galariotis, E., Pasiouras, F., Staikouras, C., Bank profit efficiency and financial consumer protection policies, Journal of Business Research, 2020, 118, P. 98–116.

 

[19] Garcia, M. T. M., Guerreiro, J. P. S. M., Internal and external determinants of banks’ profitability: The Portuguese case, Journal of Economic Studies, 2016, 43(1), P. 90–107. Doi: 10.1108/JES-09-2014-01

 

[20] Gaur, D., Ranjan M, D., Non-performing Assets and Profitability: Case of Indian Banking Sector, in. sagepub. Com/ journals- permissions- India, 2020, Doi: 10.1177/0972262920914106.

 

[21] Ghiyasi, M., Inverse DEA based on cost and revenue efficiency, Computers & Industrial Engineering, 2017, 114, p. 258–263. (In Persian)

 

 [22] Haris, M., Yao, H.X., Tariq, G., Malik, A., Mustansar, J., Intellectual Capital Performance and Profitability of Banks: Evidence from Pakistan, Journal Risk Financial Management, 2019, 12(2), 56.

Doi: 10.3390/jrfm12020056.

 

[23] Henriques, I. C., Sobreiro, V. A., Kimura, H., Mariano, E.B., Efficiency in the Brazilian banking system using data envelopment analysis, Future Business Journal, 2018, 4, P. 157–178.

 

[24] Jahanshahloo, G. R., Soleimani-Damaneh, M., Mostafaee, A., A simplified version of the DEA cost efficiency model, European Journal of Operational Research, 2018, 184, P. 814–815.

 

[25] Izadikhah, M., DEA Approaches for Financial Evaluation - A Literature Review, Advances in Mathematical Finance and Applications, 2022, 7(1), P.1-36. Doi: 10.22034/AMFA.2021.1942092.1639

 

[26] Izadikhah, M., Financial Assessment of Banks and Financial Institutes in Stock Exchange by Means of an Enhanced Two-stage DEA Model, Advances in Mathematical Finance and Applications, 2021, 6(2), P.207-232 Doi: 10.22034/amfa.2020.1896273.

 

[27] Kamarudin, F., Sufian, F., Nassir, A. M., Does country governance foster revenue efficiency of Islamic and conventional banks in GCC countries? EuroMed Journal of Business, 2016, 11(2), P.181–211.

 

[28] Kao, C., Nan Hwang, S., Measuring the effects of undesirable outputs on the efficiency of production units, European Journal of Operational Research, 2020, 292(3), P. 996-1003. Doi: 10.1016/j.ejor. 2020.11.026.

 

[29] Kuosmanen, T., Cherchye, L., Sipilainen, T., The law of one price in data envelopment analysis: Restricting weight flexibility across firms, European Journal of Operational Research, 2006, 170, P. 735–757.

 

[30] Kuosmanen, T., Post, T., Measuring economic efficiency with incomplete price information, European Journal of Operational Research, 2003, 144, P. 454–457.

 

[31] Kuosmanen, T., Post, T., Measuring economic efficiency with incomplete price information: With an application to European commercial banks, European journal of operational research, 2001, 134, P. 43–58.

 

[32] Lin, C.S., Chiu, C.M., Huang, Y.C., Lang, H.C., Chen, M.S., Evaluating the Operational Efficiency and Quality of Tertiary Hospitals in Taiwan: The Application of the EBITDA Indicator to the DEA Method and TOBIT Regression, Healthcare, 2022, 10, P.58. Doi: 10.3390/healthcare10010058.

 

[33] López-Penabad, M.C., Iglesias-Casal, A., Neto, J.F.S., Effects of a negative interest rate policy in bank profitability and risk taking: Evidence from European banks, Research in International Business and Finance, 2022, 60, P. 101597.

 

[34] Menicucci, E., Paolucci, G., The determinants of bank profitability: Empirical evidence from European banking sector, Journal of Financial Reporting and Accounting, 2016, 14(1), P. 86–115.

 

[35] Milenkovic, N., Radovanov, B., Kalaš, B., Marciki´c Horvat, A., External Two Stage DEA Analysis of Bank Efficiency in West Balkan Countries, Sustainability, 2022, 14, P. 978. Doi: 10.3390/su14020978.

 

[36] Moslemi, A., Pourzamani, Z., Jahanshad, A., Ranking of Banks’ Risk Reporting Using Data Envelopment Analysis, Advances in Mathematical Finance and Applications, 2021, 6(4), P.695-715.

Doi: 10.22034/AMFA.2021.1899631.1436.

 

[37] Mostafaee, A., Saljooghi F.H., Cost efficiency measures in data envelopment analysis with data uncertainty, European Journal of Operational Research, 2009, 197, P. 243-252.

 

[38] Nourani, M., Malim, N.A.K., Mia, A., Revisiting efficiency of microfinance institutions (MFIs): An application of network data envelopment analysis, Econ. Res. Ekon. Istraživanja, 2021, 34, P. 1146–1169.

 

[39] Öhman, P., Yazdanfar, D., Organizational-level profitability determinants in commercial banks: Swedish evidence, Journal of Economic Studies, 2018, 45(6), P. 1175–1191.

 

[40] Ozili, P. K., Bank Profitability and Capital Regulation: Evidence from Listed and non-Listed Banks in Africa, Journal of African Business, 2017, 18(2), P. 1–26. Doi:10.1080/15228916.2017.1247329.

 

[41] Řepková, I., Efficiency of the Czech banking sector employing the DEA window analysis approach, Procedia Economics and Finance, 2014, 12(1), P. 587–596.

 

[42] Roshdi, I., Hasannasab, M., Margaritis, D., Rouse, P., Generalised weak disposability and efficiency measurement in environmental technologies, European Journal of Operational Research, 2018, 266(3), P. 1000–1012.

 

[43] Sahoo, B.K., Mehdiloozad, M., Tone, K., Cost, and revenue and profit efficiency measurement in DEA: A directional distance function approach, European Journal of Operational Research, 2014, 237, P. 921–931.

 

[44] Sahoo, B. K., Tone, K., Non-parametric measurement of economies of scale and scope in non-competitive environment with price uncertainty, Omega: The Internatio

 

nal Journal of Management Science, 2013, 41, P. 97–111.

 

[45] Skandar, A. S., Che-Yahya, N., Wahid, Z. A., Determinants of Commercial Banks’ Profitability in Malaysia, Journal of Entrepreneurship and Business, 2019, 7(1), P.27-39. Doi: 10.17687/JEB.0701.03.

 

[46] Staub, R. B., da Silva Souza, G., Tabak, B. M., Evolution of bank efficiency in Brazil: A DEA approach, European Journal of Operational Research, 2010, 202(1), P. 204-213.

                                                     

[47] Stewart, C., Matousek, R., Nguyen, T. N., Efficiency in the Vietnamese banking system: A DEA double bootstrap approach, Research in International Business and Finance, 2016, 36(1), P. 96–111.

 

[48] Sueyoshi, T., Goto, M., Performance Assessment of Japanese Electric Power Industry: DEA Measurement with Future Impreciseness, Energies, 2020, 13(2), P.490-512. Doi: 10.3390/en13020490.

 

[49] Sueyoshi, T., Yuan, V., Goto, M., A literature study for DEA applied to energy and environment, Energy Economics, 2017, 62, P.104–124.

 

[50] Svitalkova, Z., Comparison and evaluation of bank efficiency in selected countries in EU, Procedia Economics and Finance, 2014, 12(1), P. 644–653.

 

[51] Toloo, M., Hanclová, J., Multi-valued measures in DEA in the presence of undesirable outputs, Omega, 2019, 94, Doi.:10.1016/j.2019.01.010.

 

[52] Tone, K., A Strange case of the cost and allocative efficiencies in DEA, Journal of the Operational Research Society, 2002, 53, P. 1225–1231.

 

[53] Tone, K., Sahoo, B. K., Evaluating cost efficiency and returns to scale in the life insurance corporation of India using data envelopment analysis, SocioEconomic Planning Sciences, 2005, 39, P. 261–285.

 

[54] Wanke, P., Azad, M. A. K., Barros, and C., Predicting efficiency in Malaysian Islamic banks: A two-stage TOPSIS and neural networks approach, Research in International Business and Finance, 2014, 36(1), P.485–498.

 

[55] Wanke, P., Barros, C., and Two-stage DEA: An application to major Brazilian banks, Expert Systems with Applications, 2016, 41(5), P. 2337–2344.

 

[56] Yilmaz, A., Güneş, N., Efficiency comparison of participation and conventional banking sectors in Turkey between 2007–2013. Procedia, Social and Behavioral Sciences, 2015, 195(1), P.383–392.

 

[57] Zanjirdar, M. Overview of Portfolio Optimization Models. Advances in Mathematical Finance and Applications, 2020, 5(4), P. 419-435. Doi: 10.22034/amfa.2020.674941