IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 3 NO. 1 2017

---

Empirical Analysis of Commercial Banks in Malaysia Using Data Envelopment Analysis (DEA) Model

Nordiana Osagie Davies

---

Abstract

The aim of this study is to evaluate the financial performance of domestic commercial banks in Malaysia over the period from 2001 to 2011.The sample consist of eight domestic commercial bank listed in the Malaysian Stock Market (Bursa Malaysia). The study uses secondary data, which were mainly taken from the annual reports of the banks extracted from the DataStream of Thomson Reuters. DEA efficiency scores were used in the bank performance analysis. The data envelopment analysis (DEA) through its intermediation approach used interest expense and non-interest expense as the input variables and advances, loans and investments as the output variables in the efficiency score analysis. DEA results shows that the overall mean scale efficiency score (92.98%) is found to be higher than that of technical efficiency score (71.33%) implying that during the period of study, domestic banks have been inefficient in controlling their costs rather than efficiently operating by optimizing the economies of scale due to their size.

keywords:

Bank Size, Asset Management, Operational Efficiency, Financial Ratios

---

References:

Alkhatib, A (2012). Financial Performance of Palestinian Commercial Bank in
India. International Journal of Business and Social Science. Vol 3. No. 3.

Bauer, P.W., Berger, A.N., Ferrier, G.D. and Humphrey, D.B., (1998). Consistency
conditions for regulatory analysis of financial institutions: A comparison of
frontier efficiency methods. Journal of Economics and Business, 50, 85–114.

Berger, A. N. (1993). Distribution-Free” estimates of efficiency in the US banking industry
and tests of the Standard Distributional Assumptions. The Journal of Productivity
Analysis, 4:261-92.

Berger, A. N., Hunter, W. C., & Timme, S. G. (1993). The efficiency of financial institutions:
A review and preview of research past, present and future. Journal of Banking and
Finance, 17 (2 & 3), 221-250.

Berger, A.N. and Humphrey, D., (1997). Efficiency of financial institutions,
International survey and directions for Future Research. European
Journal of Operational Research. 98, 175-212.

Bougnol, M.L., Dula, J., Estellita, M.P.,A. And da Silva, M., (2010). Enhancing
Standard Performance Practices with DEA, Omega, 38, 35-45.

Charnes, A., Coopers, W.W.,, and Rhodes, E., (1978). Measuring the efficiency of decision
making Units,European Journal of Operational Research 2 (6), 429-444.

Ferrier, G.D and Lovell, C.A.K. (1990). Measuring cost efficiency in banking: econometric
and linear programming evidence. Journal of Econometrics. 229-245.

Katib, M. N. & Matthews, K. (2000). A non-parametric approach to efficiency measurement
in the Malaysian banking sector. The Singapore Economic Review, 44(2), 89-114.
List of licensed Banking institutions in Malaysia. Retrieved on May 12th, 2013 from
http://www.bnm.gov.my/index.php?ch=13&cat=banking.

Luciano, Elisa and Regis, Luca. (2007). Bank efficiency and banking sector development:
The case of Italy. International Center for Economic Research. Working paper No.
5/2007. February 2007.

Najib M.S., (2011). Financial Sector Blue Print 2011-20, BNM.

Saha, A. and Ravisankar,T.S. (2000). Rating of Indian Commercial Banks: A DEA
Approach, European Journal of Operational Research, Vol.124, No.1, July1, 2000,
187-203.

Saha, A., Dash U., and Yadav R.(2013). Efficiency and Productivity in Malaysian Banking
(1995 to 2009): An Analytical Insight. Unpublish working paper.

Tahir, I.M, Abu Bakar, N.M and Haron,S. (2009). Evaluating Efficiency of Malaysian Banks
using Data Envelopment Analysis. International Journal of Business and
Management. Vol.4, No.8.

DOWNLOAD PDF

---

Back