Measuring the operating efficiency of domestic banks with DEA

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.