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Efficiency Evaluation of Banking Sector by Using the Non-Parametric DEA Methodology

This article analyses the application of the non- parametric DEA (data envelopment analysis) in evaluation of the performance and efficiency of commercial banks. Banks are important financial intermediaries of any national economy. The evaluation of banking efficiency and performance is vital, especially in developing bank-based countries with underdeveloped financial systems, due to its strong and positive relationship with financial growth and stability. Banks’ efficiency measurement gives insights and valuable information to stakeholders, creditors and policymakers. The main objective of the research is to provide with an extensive literature review of DEA application in the banking sector and give guidance for future research in this area. Furthermore, the goal of this article is to present and thoroughly elaborate the DEA methodology (its main application, strengths and limitations) and to raise awareness and knowledge of scholars, practitioners and policymakers on how to measure banking efficiency. The author has covered and presented the most cited articles and studies of bank efficiency measurement with DEA application in global terms, ever since DEA’s introduction by Charnes, Cooper and Rhodes in 1978.

DEA ; data envelopment analysis ; banking sector ; commercial banking ; non- parametric method ; relative efficiency

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