Cost Efficiency Analysis in the Banking Industry

2020 ◽  
Vol 7 (2) ◽  
pp. 1-20
Author(s):  
Gazmend Nure
Keyword(s):  
Cost Efficiency ◽  
Commercial Banks ◽  
Stochastic Frontier Analysis ◽  
Banking Industry ◽  
Stochastic Frontier ◽  
Efficiency Analysis ◽  
Frontier Analysis ◽  
Relative Lack ◽  
Boundary Model ◽  
The Stability

The efficiency of commercial banks is essential for the stability of banks by implying that banks that take higher risks are more inefficient. This paper builds on a stochastic heteroscedastic boundary model, where one will analyze a sample of 70 banks in Western Balkan countries such as Albania, Northern Macedonia, Serbia, Kosovo, and Montenegro for the period 2007-2017, highlighting determinants of bank cost efficiency. Banks with less liquidity, with a lower solvency rate and a higher credit risk, are more ineffective than prudent credit institutions. The paper also aims to address the relative lack of studies on the efficiency of banks in the region through the use of the stochastic frontier analysis (SFA).

scholarly journals PENGARUH EFISIENSI BIAYA PERBANKAN DI KAWASAN ASEAN- 5

2018 ◽  
Vol 1 (2) ◽  
Author(s):  
Tamitha Intasar Husen
Keyword(s):  
Cost Efficiency ◽  
Commercial Banks ◽  
Stochastic Frontier Analysis ◽  
Banking Industry ◽  
Stochastic Frontier ◽  
The Philippines ◽  
Time Varying ◽  
Return On Equity ◽  
Frontier Analysis ◽  
Relationship Of

Abstract. This study examines determinants of   cost efficiency of   banking operation in ASEAN-5 region which includes Indonesia, Singapura, Malaysia, the Philippines, and Thailand. By using stochastic frontier analysis (SFA) to 23 commercial banks in the region in the period of   2005-2012, empirical results reveal certain significant relationship of   cost efficiency with individual bank characteristic (return on equity, ROE). Based on the time-varying decay method, we conclude that there is an increase in cost efficiency during the period of  study. This study also shows that in general, Indonesian banking industry was not operating efficiently. Keywords: ASEAN-5, cost efficiency, banking, SFA, time-varying decay

scholarly journals Evaluating Bank Cost Efficiency Using Stochastic Frontier Analysis

2019 ◽  
Vol 11 (3(J)) ◽  
pp. 48-57
Author(s):  
Sanderson Abel ◽  
Alex Bara ◽  
Pierre Le Roux
Keyword(s):  
Interest Rates ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Banking System ◽  
Frontier Analysis ◽  
Doing Business ◽  
The Cost

The study seeks to assess the cost efficiency of the commercial banks in Zimbabwe using the stochastic frontier analysis. The cost efficiency of the Zimbabwean banks is estimated using the trans-log stochastic frontier approach. The Stochastic Frontier Analysis methodology is among the host of methods that has been used to measure banking sector efficiency. The analysis of cost efficiency of commercial banks has important implications for the economy since an efficient banking system has potential to reduce interest rates which can lead to increased investment and growth for the economy. The cost of doing business in Zimbabwe is perceived to be high hence improved bank efficiency has the potential to reduce the cost of doing business. The average cost efficiency scores for the Zimbabwean banks over the study period show that the banking sector in Zimbabwe experiencing 17 percent inefficiency. The efficiency levels have been declining over the years reflecting increased resource wastage in the system. The study recommends that the banking institutions should continue to innovate so as to reduce their inefficiencies.

scholarly journals Regulatory Impact of Bank Performance in Nigeria: Application of Stochastic Frontier Analysis

2017 ◽  
Vol 4 (4) ◽  
pp. 32 ◽  
Author(s):  
Mustapha A. Akinkunmi
Keyword(s):  
Cost Efficiency ◽  
Commercial Banks ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Empirical Work ◽  
Frontier Analysis ◽  
Total Cost ◽  
Regulatory Impact ◽  
The Cost ◽  
Input Prices

This study employs a panel dataset on the cost efficiency of Nigerian commercial banks to test the hypothesis whether internal regulation from the monetary authority affects the performance of commercial banks. The empirical work is carried out through the use of stochastic frontier analysis on 14 commercial banks over 10 years. The study finds that regulation has a negative and significant influence on the total cost while bank output, input prices and bank size have a positive and significant effect. This implies that the large the bank size, the higher total cost incurred.

scholarly journals ANALISIS TINGKAT EFISIENSI BIAYA BANK UMUM SYARIAH DENGAN METODE STOCHASTIC FRONTIER ANALYSIS PERIODE 2015-2018

2020 ◽  
Vol 7 (1) ◽  
pp. 199
Author(s):  
Devy Ariesta Putri ◽  
Sylva Alif Rusmita
Keyword(s):  
Commercial Bank ◽  
Cross Section ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Islamic Banking ◽  
Frontier Analysis ◽  
The Cross ◽  
The Cost

This study aims to determine the cost efficiency level of Sharia Commercial Banks registered in the OJK for the 2015-2018 period. This study uses a quantitative approach. This study uses a parametric approach to measure the cost efficiency of Islamic banking with the stochastic frontier analysis (SFA) method. The value of cost efficiency using the SFA method is in the form of a value of 100%, the closer it is to the value of 100%, the more efficient the bank works. The analysis technique used is the cross-section model and panel model. This study uses 7 Sharia Commercial Bank samples. Data obtained from each of the Sharia Commercial Bank Financial Report websites. The results of the Cross-Section Stochastic Frontier Analysis analysis on cost efficiency show the average value of the efficiency of Islamic banking in Indonesia approaching 95.92%. The results of the cost-efficiency analysis show that Islamic banking in the 2015-2018 period tended to be less efficient in controlling costs.Keywords: Cost efficiency, Islamic commercial banks, Stochastic Frontier Analysis (SFA).

scholarly journals THE COST EFFICIENCY OF CAMBODIAN COMMERCIAL BANKS: A STOCHASTIC FRONTIER ANALYSIS

2021 ◽  
pp. 1-20
Author(s):  
DAIJU AIBA ◽  
OKUDA HIDENOBU
Keyword(s):  
Empirical Evidence ◽  
Rural Areas ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Frontier Analysis ◽  
Business Operations ◽  
The Cost

The Cambodian banking sector has rapidly expanded in recent decades, although there are concerns about the performance of Cambodian banks and the country’s banking sector. A paucity of empirical evidence to clarify the real issues in the banking sector also makes it difficult to formulate effective policy measures to address any potential problems. This study provides empirical evidence by estimating the cost function and efficiencies of 34 commercial banks over the period from 2012 to 2015. We find that the average cost efficiency scores range from 0.60 when measuring bank outputs as loan and deposit amounts, and 0.77 when measuring bank outputs as interest and non-interest income, suggesting that if they are operated more efficiently, they could cut costs by 40% in fund mobilization and 23% in profit making while keeping the same output level. We also find that the Cambodian banks have experienced an improvement in efficiency scores over the period for both aspects of banking activities. Furthermore, we find that expanding a branch network into rural areas is inefficient for bank management, and holding excessive liquidity is associated with higher efficiency, but diversification in bank business operations is negatively associated with cost efficiency of Cambodian commercial banks.

scholarly journals Diversifikasi Aset, Risiko Bank, Ukuran Bank, dan Likuiditas Bank terhadap Efisiensi Bank Syariah dengan Metode SFA

2020 ◽  
Vol 10 (1) ◽  
pp. 129
Author(s):  
Anggraeni Anggraeni ◽  
Iik Arie Saputri
Keyword(s):  
Statistical Analysis ◽  
Commercial Banks ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Financial Statements ◽  
Efficiency Analysis ◽  
Bank Risk ◽  
Frontier Analysis ◽  
Negative Effect ◽  
Positive Effect

The purpose of this study is to examine the effect of Asset Diversification, Bank Risk, Bank Size and Bank Liquidity on the Efficiency of Sharia Banks Using Stochastic Frontier Analysis (SFA). This research methodology uses eleven Sharia Commercial Banks in Indonesia that have been registered with the OJK for the 2014-2018 period. The results of the data obtained in the quarterly financial statements per December were analyzed using efficiency analysis using Frontier 4.1 and descriptive and statistical analysis through the SPSS 16.0 program.The results showed that ADIV-HHI, NPF, and FDR had a negative effect on efficiency. Whereas Total Assets has a positive effect on Efficiency. And ADIV-HHI, NPF, Total Assets, and FDR simultaneously have a significant effect.

scholarly journals Efisiensi Bank Umum Syariah Di Indonesia Dengan Pendekatan Three Stages Frontier Analysis

2020 ◽  
Vol 8 (2) ◽  
pp. 115-129
Author(s):  
Ibnu Muttaqin ◽  
◽  
Rini Rini ◽  
Alif Ilham Akbar Fatriansyah ◽  
◽  
...  
Keyword(s):  
Commercial Banks ◽  
Banking Industry ◽  
Stochastic Frontier ◽  
Tobit Model ◽  
Islamic Banking ◽  
Frontier Analysis ◽  
Average Efficiency ◽  
Purposive Sampling ◽  
Three Stages

Efficiency is one of the parameters to measure the performance of the banking industry. This paper is using three stages to find out how the conditions of efficiency level of Islamic banking. Frontier and Stochastic Frontier Approaches are used to calculate the efficiency level and then averaged. Last, the determinants of efficiency were conducted by the Tobit Model. The data are 7 Sharia Commercial Banks during the period 2010 to 2017 which are chosen by purposive sampling. The study found the average efficiency level is 83.51% and is classified as less efficient. The Tobit model showed that all of the variables have not significant effect on efficiency level Islamic banking, except the ROA.

scholarly journals Labour efficiency in construction industry in Europe based on frontier methods: data envelopment analysis and stochastic frontier analysis

2017 ◽  
Vol 23 (6) ◽  
pp. 787-795 ◽  
Author(s):  
Joanicjusz NAZARKO ◽  
Ewa CHODAKOWSKA
Keyword(s):  
Data Envelopment Analysis ◽  
Construction Industry ◽  
Technical Efficiency ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Efficiency Analysis ◽  
European Countries ◽  
Personnel Cost ◽  
Data Envelopment ◽  
Frontier Analysis

The primary problems pertaining to productivity or – more precisely – efficiency are: how to define it and how to measure it. This article studies technical efficiency in Stochastic Frontier Analysis (SFA) – the input-oriented frontier model – in the construction industry and compares it with Data Envelopment Analysis (DEA) results. The models ex­plored in this paper were constructed on the basis of two outputs and personnel cost as an input. The research sample consisted of European countries. The aim was to determine whether there are substantial differences in estimation of ef­ficiency derived from those two alternative frontier approaches. The comparison of results according to the models may translate into higher reliability of the undertaken labour efficiency analysis in construction and its conclusions. Although the results are not characterized by high compatibility, the conducted analysis indicated the most attractive countries taking into account labour cost to profit and turnover ratios of enterprises. One of the determinants which should not be ignored when analysing the labour efficiency is the level of development of a country; however, it is not the sole factor affecting the efficiency of the sector.

scholarly journals The cost efficiency of Vietnamese banks – the difference between DEA and SFA

2020 ◽  
Vol 22 (2) ◽  
pp. 209-227
Author(s):  
Phong Hoang Nguyen ◽  
Duyen Thi Bich Pham
Keyword(s):  
Cost Efficiency ◽  
Stochastic Frontier Analysis ◽  
Random Noise ◽  
Stochastic Frontier ◽  
Time Consistency ◽  
Efficiency Frontier ◽  
Content Type ◽  
Frontier Analysis ◽  
The Difference ◽  
The Cost

PurposeThe paper aims to enrich previous findings for an emerging banking industry such as Vietnam, reporting the difference between the parametric and nonparametric methods when measuring cost efficiency. The purpose of the study is to assess the consistency in issuing policies to improve the cost efficiency of Vietnamese commercial banks.Design/methodology/approachThe cost efficiency of banks is assessed through the data envelopment analysis (DEA) and the stochastic frontier analysis (SFA). Next, five tests are conducted in succession to analyze the differences in cost efficiency measured by these two methods, including the distribution, the rankings, the identification of the best and worst banks, the time consistency and the determinants of efficiency frontier. The data are collected from the annual financial statements of Vietnamese banks during 2005–2017.FindingsThe results show that the cost efficiency obtained under the SFA models is more consistent than under the DEA models. However, the DEA-based efficiency scores are more similar in ranking order and stability over time. The inconsistency in efficiency characteristics under two different methods reminds policy makers and bank administrators to compare and select the appropriate efficiency frontier measure for each stage and specific economic conditions.Originality/valueThis paper shows the need to control for heterogeneity over banking groups and time as well as for random noise and outliers when measuring the cost efficiency.

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