Application of Malmquist Indexes, Empirical Model and Data Envelopment Analysis: A Measure of Performance and Efficiency of Commercial Banks in Taiwan
Lung-Tan Lu *
Department of Management, Guang University, Taiwan
Shing-Ko Liang
Department of Future Studies, Fo Guang University, Taiwan
Yuan-ho Lee
Department of Banking and Finance, Chinese Culture University, Taiwan
*Author to whom correspondence should be addressed.
Abstract
Aims: This paper examines the performance of commercial banks in Taiwan, in terms of their ability to provide maximum outputs by the given input utilization. There seems to be important concern hanging on the ability of commercial banks to provide output-base for the available input utilization in Taiwan.
Study Design: This study has been divided into four parts to investigate the DEA model such as efficiency analysis, return to scale analysis, slack variable analysis and sensitivity analysis.
Place and Duration of Study: The data used in the study are from the reports of the Bank Sector Statistics published by the Central Bank, Taiwan from 2006 to 2010.
Methodology: The Data Envelopment Analysis (DEA) and Malmuist Index methods have been employed to determine the effects of variable returns on the operational performance and efficiency. The variables used in the study include inputs: (1) numbers of branches, (2) number of employee per branch, (3) share in total assets, (4) share in total loans, and (5) share in total deposits and outputs: (1) ROA, (2) ROE, (3) net interest income/total assets, (4) net interest income/total operating income and (5) non-interest income/total assets.
Results: The DEA efficiency scores can be interpreted to illustrate that individual bank may increase its outputs without changing the input utilization if the technical efficient is as good as the best practice bank. Regarding the change on the technical efficiency, the change rate in the period of 2007-2008 is 0.949, which shows that the technical efficiency has declined. Moreover, the following periods, 2008-2010 have declined further. For the change of scale efficiency in the period of 2006-2007 is 0.931 whilst the rate is 1.008 in the following period (2007-2008).
Conclusion: It is found that the operation of commercial banks in Taiwan is not on the optimal scale. For resource consumption, there should be some rooms for improvement.
Keywords: Bank, performance, data envelopment analysis, `malmquist index