Measuring efficiency of banks in Saudi Arabia: A data envelopment analysis approach
-
DOIhttp://dx.doi.org/10.21511/bbs.17(4).2022.06
-
Article InfoVolume 17 2022, Issue #4, pp. 61-71
- 371 Views
-
117 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The current study investigates the efficiency of banks in Saudi Arabia in terms of technical change and change in total productivity. The study considers ten banks listed on Tadawul as a sample from 2016 to 2021. The Malmquist Data Envelopment Analysis (Malmquist DEA) model is employed to measure banks’ efficiency. Customer deposits and balances with other banks and financial institutions are inputs, while the operating profit and net income are outputs to measure efficiency. The results of efficiency report that most of the Saudi Arabian banks are considerably efficient, while some are marginally efficient. The technical change report results show that Saudi Arabia’s banks are enthusiastic about adopting new technologies that lead to their growth. Further, the results of the change in total productivity show great dynamism among the Saudi Arabian banks to become more productive, which ultimately leads to a more remarkable performance. The study results demonstrate the good performance of Saudi Arabian banks; however, very few banks are marginally efficient in terms of efficiency change. Therefore, the study supports the established hypothesis that there is a significant change in the technical efficiency and total productivity of Saudi Arabian banks.
Acknowledgment
The author(s) acknowledge that the Deanship of Scientific Research supports the current project at Prince Sattam Bin Abdulaziz University under research project number 2022/02/20810.
- Keywords
-
JEL Classification (Paper profile tab)C02, C67, G21, O33
-
References34
-
Tables7
-
Figures3
-
- Figure 1. Change in efficiency of Saudi Arabian banks
- Figure 2. Change in technology of Saudi Arabian banks
- Figure 3. Change in total productivity of Saudi Arabian banks
-
- Table 1. List of Decision-Making Units (DMUs) selected for the analysis
- Table 2. List of input and output variables
- Table 3. Correlation analysis
- Table 4. MPI models with a combination of different inputs and outputs
- Table 5. The scores of changes in the efficiency of Saudi Arabian banks
- Table 6. The scores of technical changes in the efficiency of Saudi Arabian banks
- Table 7. The scores of total productivity change of Saudi Arabian banks
-
- Abidin, Z., Prabantarikso, R. M., Wardhani, R. A., & Endri, E. (2021). Analysis of Bank Efficiency between Conventional Banks and Regional Development Banks in Indonesia. Journal of Asian Finance, Economics and Business, 8(1), 741-750.
- Alrafadi, K. M., Yusuf, M. M., & Kamaruddin, B. H. (2016). Measuring efficiency in banks: a brief survey on non–parametric technique (data envelopment analysis). International Journal of Business, Economics and Management, 3(5), 52-68.
- Altun Ada, A., & Dalkilic, N. (2014). Efficiency Analysis in Islamic Banks: A Study for Malaysia and Turkey. BDDK Bankacılıkve Finansal Piyasalar, 8(1), 9-33.
- Andrieş, A. M., & Cocriş, V. (2010). A comparative analysis of the efficiency of Romanian banks. Romanian Journal of Economic Forecasting, 13(4), 54-75.
- Bapat, D. (2012). Efficiency for Indian public sector and private sector banks in India: assessment of impact of global financial crisis. International Journal of Business Performance Management, 13(3-4), 330-340.
- 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), 221-249.
- Chaluvadi, S., Raut, R., & Gardas, B.B. (2018). Measuring the performance efficiency of banks in a developing economy. The case study of Indian public sector vs private sector. Benchmarking: An International Journal, 25(2), 575-606.
- Depren, S. K., & Depren, Ö. (2016). Measuring efficiency and total factor productivity using data envelopment analysis: An empirical study from banks of Turkey. International Journal of Economics and Financial Issues, 6(2), 711-717.
- Duho, K. C. T. (2020). Intellectual capital and technical efficiency of banks in an emerging market: a slack-based measure. Journal of Economic Studies, 47(7), 1711-1732.
- Fethi, M. D., & Pasiouras, F. (2010). Assessing bank efficiency and performance with operational research and artificial intelligence techniques: A survey. European Journal of Operational Research, 204(2), 189-198.
- Golany, B., & Roll, Y. (1989). An application procedure for DEA. Omega, 17(3), 237-250.
- Haque, A., & Tariq, A. (2012). Efficiency of Banks in Pakistan: A Non Parametric Approach. Business and Economic Research, 2(1), 1-12.
- Hassan, M., Khan, M. N., Amin, M. F. B., & Khokhar, I. (2018). Measuring the Performance of Islamic Banks in Saudi Arabia. International Journal of Economics and Management, 12(1), 99-115.
- Iqbal, M., & Molyneux, P. (2005). Thirty years of Islamic banking: History, performance, and prospects. New York: Palgrave Macmillan.
- Jiang, H., & He, Y. (2018). Applying data envelopment analysis in measuring the efficiency of Chinese listed banks in the context of macroprudential framework. Mathematics, 6(10), 184.
- Kasim, M. M., Ramli, R., Baten, A., Jamil, J. M., & Taleb, M. (2019). Efficiency of Banks in Malaysia: A Super Efficiency Approach. Inzinerine Ekonomika – Engineering Economics, 30(4), 442-450.
- Ke, T.-Y., Li, Y., & Chiu, Y.-H. (2011). Analyzing for profit efficiency of banks with undesirable output. African Journal of Business Management, 5(20), 8141-8149.
- Khan, S. J. M., Samsudin, S., & Islam, R. (2017). Efficiency of banks in Southeast Asia: Indonesia, Malaysia, Philippines and Thailand. International Journal of Social Economics, 44(12), 2302-2312.
- KPMG. (2021). Saudi Arabia 2021 Budget Report.
- Kumar, N., & Singh, A. (2014). Efficiency Analysis of Banks using DEA: A Review. International Journal of Advance Research and Innovation, 1, 120-126.
- Ngo, T., & Tripe, D. (2017). Measuring efficiency of Vietnamese banks. Pacific Accounting Review, 29(2), 171-182.
- Nguyen, P. H., & Pham, D. T. B. (2020). The cost efficiency of Vietnamese banks – the difference between DEA and SFA. Journal of Economics and Development, 22(2), 209-227.
- Oral, M., & Yolalan, R. (1990). An empirical study on measuring operating efficiency and profitability of bank branches. European Journal of Operational Research, 46(3), 282-294.
- Radojicic, M., Savic, G., & Jeremic, V. (2018). Measuring the Efficiency of Banks: The Bootstrapped I-Distance GAR DEA Approach. Technological and Economic Development of Economy, 24(4), 1581-1605.
- Said, A. (2012). Efficiency in Islamic Banking during a Financial Crisis-an Empirical Analysis of Forty-Seven Banks. Journal of Applied Finance & Banking, 2(3), 163-197.
- SAMA. (2020). 57th Annual Report.
- Sathye, S., & Sathye, M. (2017). Do ATMs Increase Technical Efficiency of Banks in a Developing Country? Evidence from Indian Banks. Australian Accounting Review, 27(1), 101-111.
- Shahwan, T. M., & Hassan, Y. M. (2013). Efficiency analysis of UAE banks using data envelopment analysis. Journal of Economic and Administrative Sciences, 29(1), 4-20.
- Titko, J., Stankevičienė, J., & Lāce, N. (2014). Measuring bank efficiency: DEA application. Technological and Economic Development of Economy, 20(4), 739-757.
- Tyas, A. A., & Rusydiana, A. S. (2021). The Pre-Merger Efficiency of Banks: Evidence in Indonesia State-Owned Islamic Banks. Jurnal Ekonomi dan Bisnis Islam, 7(1), 1-13.
- Vegesna, S., & Dash, M. (2014). Efficiency of public and private sector banks in India. Journal of Applied Management and Investments, 3(3), 183-187.
- Wang, C.-N., Nguyen, N.-A.-T., Dang, T.-T., & Trinh, T.-T.-Q. (2021). A Decision Support Model for Measuring Technological Progress and Productivity Growth: The Case of Commercial Banks in Vietnam. Axioms, 10(3), 131.
- Wanke, P., Barros, C. P., & Emrouznejad, A. (2016). Assessing productive efficiency of banks using integrated Fuzzy-DEA and bootstrapping: A case of Mozambican banks. European Journal of Operational Research, 249(1), 378-389.
- Worimegbe, P. M., Abosede, A. J., & Worimegbe, T. M. (2018). Efficiency, customers’ satisfaction and deposit money banks’ performance in Nigeria. Journal of Economics and Management, 31(1), 134-148.