Efficiency Analysis of Macedonian and Croatian Banking Sectors with DEA
Journal
Economy, Business & Development
Date Issued
2021
Author(s)
Fotova Cikovic, Katerina
DOI
10.47063/ebd.00003
Abstract
The aim of this paper is to measure the relative efficiency of commercial banks in two developing
countries, the Republic of North Macedonia and the Republic of Croatia under the operating (income based) approach by using the leading non-parametric methodology data envelopment analysis (DEA).
We follow Banker et al. (2010) in the selection of the approach, variables (two inputs: interest expense
and other operating expense, and two outputs: interest revenue and other operating revenue) and the
model (output-oriented BCC DEA model) as in their first stage. The observed period is five years
(2015-2019) and we use a balanced panel data for both samples (total of 65 Macedonian and 100
Croatian bank-year observations). Outliers are identified and excluded by using the Banker and
Gifford (1988) super-efficiency procedure, and the BCC output-oriented model is rerun for both
samples (total 55 Macedonian and 95 Croatian bank-year observations). We provide relative efficiency
scores for each bank in both sectors, as well as an average score for the banking sectors. In addition,
we analyse few banks for both sectors that have decreased or increased the efficiency, or show
variable results over time. Besides, we explain how inefficient banks can improve the efficiency in
future by setting targets for improvement. Our study provides valuable information for banking
management and regulatory bodies.
countries, the Republic of North Macedonia and the Republic of Croatia under the operating (income based) approach by using the leading non-parametric methodology data envelopment analysis (DEA).
We follow Banker et al. (2010) in the selection of the approach, variables (two inputs: interest expense
and other operating expense, and two outputs: interest revenue and other operating revenue) and the
model (output-oriented BCC DEA model) as in their first stage. The observed period is five years
(2015-2019) and we use a balanced panel data for both samples (total of 65 Macedonian and 100
Croatian bank-year observations). Outliers are identified and excluded by using the Banker and
Gifford (1988) super-efficiency procedure, and the BCC output-oriented model is rerun for both
samples (total 55 Macedonian and 95 Croatian bank-year observations). We provide relative efficiency
scores for each bank in both sectors, as well as an average score for the banking sectors. In addition,
we analyse few banks for both sectors that have decreased or increased the efficiency, or show
variable results over time. Besides, we explain how inefficient banks can improve the efficiency in
future by setting targets for improvement. Our study provides valuable information for banking
management and regulatory bodies.
Subjects
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