engleski

Measurement of cost efficiency in the European banking industry

In the paper there are analysed and compared banking industry efficiency results by using two approaches, one with financial indicators and the other with Data Envelopment Analysis (DEA) methodology. In the approach with indicators, chosen accounting ratios (Return on Assets-ROA, Return on Equity–ROE and Cost to Income Ratio-CIR) are used and analysed by descriptive statistics methodology. In the case of DEA as a nonparametric linear programming methodology approach, expenses as input data and income as output data are used for the efficiency measurement by CCR DEA model, BCC DEA model and window analysis DEA technique. The objective of this research is to see if there exists correlation between the results of different efficiency measurement approaches. In that sense, the main purpose of this research is to get more precise conclusion about the banking industry efficiency, tested for the period 2008–2012 on the sample of 28 European banking systems. The main difference in the results obtained is a lag of values of average accounting ratios in comparison to the results of DEA methodology. Such a finding suggests that DEA methodology can be useful in detecting early signs of inadequate business strategies, which can lead to the slowdown of business activity or poorer efficiency results. This can be especially important in times of unstable financial or macroeconomic environment, because it can help in detecting early signs of crisis. In general, the results of both approaches suggest that banking systems of post- transition countries have higher cost efficiency. Those systems still have deposit-oriented financing base, but also have specific competition, risk exposure, financial and macroeconomic environment, which have significant influence on financial services prices (i.e. higher margin) and as a consequence potentially higher banking sector earnings.

banking industry ; efficiency ; data envelopment analysis ; accounting ratios

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