Estimation of Banking Efficiency in the Czech Republic: Dynamic Data Envelopment Analysis

This paper estimates the efficiency of Czech commercial banks during the period 2001 to 2011. We applied Dynamic Data Envelopment Analysis (DEA) to data from Czech commercial banks. The DEA measures the relative efficiency of a homogeneous set of decision-making units (DMUs) in their use of multiple inputs to produce multiple outputs. Dynamic Data Envelopment Analysis is a new approach which estimates the performance of a group of DMUs during several periods of time. The results of Dynamic DEA models showed that the average efficiency computed under the assumption of constant returns to scale reached a value of 86.7% and that the average efficiency estimated under the assumption of variable returns to scale was 95.7%. Efficiency slightly increased in the period analysed. The result of scale efficiency found that the main source of inefficiency is the inaccurate size of the biggest banks and also the excess client deposits managed by Czech banks.