Technical Efficiency and Technological Change in Australian Building Societies

In this study the nature and extent of efficiency and productivity growth in deposit-taking institutions is investigated using nonparametric frontier techniques. Employing Malmquist indices, productivity growth is decomposed into technical efficiency change and technological change for a sample of Australian building societies. The results indicate that most building societies experienced productivity gain in the past several years, and this was largely the result of technological progress rather than efficiency improvements. That productivity growth which did occur due to an increase in efficiency over the period tended to be the result of improvements in scale efficiency, whilst efficiency gain was most pronounced in building societies with a high ratio of net interest income and non-interest income to total assets, low operating expense ratios, and relatively high expenditures on marketing and promotion.