The impact of asset size on Financial and Technical efficiency – An analysis of selected Gulf Cooperation Council* (GCC) banks
Keywords:
Asset size, Efficiency, CAMEL, Financial efficiency, Technical efficiency, Globally efficient, Locally efficient
Abstract
In light of the changing dynamics of the GCC Banking Sector, that have triggered bank consolidations, the question of asset size contribution to the banks’ efficiency is intrigued. The rational binding the research is to test the conception that larger banks tend to be more efficient by reaping the benefits of economies of scale, but how much of this will materialize in the GCC is why we embarked on exploring this area. For an entity both financial and technical efficiency are of paramount importance. The extant literature review undertaken by the authors have proved that in the GCC there is a dearth of studies comparing the financial and technical efficiencies of the banks. Financial efficiency analysis throws light on the profitability aspects of the banks whereas the studies on technical efficiency analysis of banks divulge whether resources under disposition are optimally utilized or not in order to achieve financial efficiency. Current study is unique because the authors tried to fill the identified gaps in the literature on efficiency analysis by choosing diverse methodologies to gauge financial and technical efficiency of the “big banks” in the GCC which are classified based on their assets size. The conclusions deduced is that asset size does not predispose neither financial nor technical efficiency of GCC banks. This depreciating outlook on the expected returns from scaling up could inform the prevailing talks about GCC banks mergers.
References
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Arora, S.; and Kaur, S. (2006), “Financial Performance of Indian Banking Sector in Post-Reform Era”, The Indian Journal of Commerce, Vol.59, No.1, pp.96-105.
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Bhattacharyya, A., Lovell, C.A.K. and Sahay, P. (1997). The Impact of Liberalization on the
Productive Efficiency of Indian Commercial Banks. European Journal of Operational Research,
98: 332-345.
Brinda, J.; and Dubey, A. K. (2007), “Performance of Public Sector Banks: An
Econometric Analysis”, The Indian Banker, Vol.2, No.12, pp. 26-34.
Biresh K. Sahoo, Jati K. Sengupta, Anandadeep Mandal., (2007) “Productive Performance Evaluation of the Banking Sector in India Using Data Envelopment Analysis”, International Journal of Operations Research, Vo. 4, No. 2, 63-79.
Brown, M. & Skully, K. (2003, September). ‘A Cross-Country Analysis of Islamic Bank
Performance’. Paper presented at the International Banking Conference 2003 “From Money Lender to Banker: Evolutions of Islamic Banking in Relation to Judeo-Christian and Oriental Traditions, Prato, Italy.
Bodla, BS & Verma, R 2006, ‘Evaluating Performance of Banks through CAMEL Model: A Case Study of SBI and ICICI’, The ICFAI Journal of Bank Management, vol.5, no.3,
Coelli, T. (1996). A guide to DEAP version 2.1: A data envelopment analysis (computer) Program,
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Armidale.
Coelli, T. (2004, August). Efficiency and productivity measurement: An overview of concepts,
terminology and methods. Paper presented at the short course on Productivity and
Efficiency Measurement Methods with Applications to Infrastructure Industries, University of
Queensland, Brisbane.
Coelli, T., Prasada Rao, D. & Battese, G. E. (1998). An introduction to efficiency and productivity
analysis. Massachusetts, USA: Kluwer Academic Publishers.
Das, A., Nag, A., and Ray, S.C. (2004), “Liberalization, Ownership, and Efficiency in
Indian Banking: A Nonparametric Approach,” Economics Working Papers, University of
Connecticut
Elyasiani, E., & Mehdian, S. (1992). Productive efficiency performance of minority and non-minority
owned banks: A nonparametric approach. Journal of Banking and Finance, 16, 933-948
Farrell, M.J. (1957). The measurement of productive efficiency. Journal of Royal Statistical Society,
120(3), 253-281.
Gilbert, R.A. and Wilson, P.W. (1998), “Effects of Deregulation on the Productivity of
Korean Banks,” Journal of Economics and Business, 50.
Gupta & Kaur 2008, ‘A CAMEL Model Analysis of Private Sector Banks in India’, Journal of Gyan Management, vol. 2, no. 1, pp. 3-8.
Hiroshi Morita Necmi K. Avkiran, (2009), “Selecting inputs and outputs in Data Envelopment Analysis by designing statistical experiments”, Journal of the Operations Research
Society of Japan, Vol. 52, No. 2, 163-173
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Finance, 27(8).
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Banks and Bank Systems, Volume 2, Issue 4.
Jemri¢, I. and Vuj£i¢, B. (2002), “Efficiency of Banks in Croatia: A DEA Approach,”
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Jayaraman and Srinivasan (2009), “Relative Efficiency of Scheduled Commercial
Banks in India (2001-08): A DEA Approach”, Prajnan, Vol. XXXVIII, No.2 (July- Sept.), Pune.
Iveta Řepková (2010), “Measuring the efficiency in the Czech banking industry:
Data Envelopment Analysis and Malmquist index”, Proceedings of 30th International Conference Mathematical Methods in Economics
Kabir,Anwarul, Suman Dey., ‘Performance analysis through CAMEL Rating: A comparative study of selected private commercial banks in Bangladesh’, Journal of Politics and GovernanceVol.1, No 2/3, pp.16-25, September 2012
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Kumar, S. and Gulati, R. (2007), “Evaluation of technical efficiency and ranking of
public sector banks in India,” International Journal of Productivity and Performance
Management, Vol. 57, Issue 7
Kumbhakar, S. C. and Sarkar, S. (2003), " Deregulation, Ownership, and Productivity
Growth in the Banking Industry: Evidence from India," Journal of Money, Credit and
Banking, Ohio State University Press, Vol. 35(3).
K.R.Shanmugam and A.Das (2004) “Efficiency of Indian commercial banks during the
reform period,” Applied Financial Economics
Mabwe Kumbirai, Robert Web, (2010), “A financial Ratio Analysis of Commercial Bank
Performance in South Africa”, African Review of Economics and Finance, Vol. 2, No. 1, December.
Mukherjee, K., Ray, S.C. and Miller, S.M. (2001), “Productivity growth in large US commercial banks: the initial post-deregulation experience”, Journal of Banking and Finance, Vol. 25 No. 5, pp. 913-39
Mahesh, H.P., and Rajeev, M. (2007), “Liberalisation and Productive Efficiency of Indian Commercial Banks: A Stochastic Frontier Analysis,” Munich Personal RePEc Archive, Paper No. 827
Moody’s paper on GCC outlook March 2018
Munawar Iqbal, ‘Islamic and Conventional banking in the nineties: A comparative study’, Islamic Economic studies, Vol.8, No.2, April 2001
Nikiel, E. and Opiela, T. (2002), “Customer Type and Bank Efficiency in Poland:
Implications for Emerging Banking Market,” Contemporary Economic Policy
Nikolay Nenovsky, Petar Chobanov, Gergana Mihaylova, Darina Koleva. (2008), “Efficiency of the Bulgarian Banking System: Traditional Approach and Data Envelopment Analysis”, working paper series, agency for economic analysis and planning
Nimalathasan Balasundaram (2008), “A Comparative Study of Financial Performance of Banking Sector in Bangladesh - An Application of CAMELS Rating System”, Annals of University of Bucharest, Economic and Administrative Series, Number 2, pp. 141-152
Omprakash K. Gupta, Yogesh Doshit, and Aneesh Chinubhai (2008) in Dynamics of Productive Efficiency of Indian Banks, International Journal of Operations Research Vol. 5, No. 2, 78-90 (2008)
Prasada K.V.N., Ravinderb G. (2012), “ A Camel Model Analysis of Nationalized Banks in India”,
International Journal of Trade and Commerce-IIARTC January-June 2012, Volume 1, No. 1, pp. 23-33
Price Water House Coopers’ report on Global Annual Review 2018
Ram Mohan, T. T. (2002), “Deregulation and Performance of Public Sector Banks,”
Economic and Political Weekly, Vol.37, No.5.
Ram Mohan, T. T. (2003), “Long-Run Performance of Public and Private Sector Bank
Stocks”, Economic and Political Weekly, Vol.38, No.8.
Ram Mohan, T. T. and S. C. Ray (2004), “Comparing Performance of Public and Private
Sector Banks: A Revenue Maximisation Efficiency Approach”, Economic and Political
Weekly, Vol.39, No.12.
Richard S. Barr, Kory A. Killgo,Thomas F. Siems, Sheri Zimmel (1999), “Evaluating the Productive Efficiency and Performance of U.S. Commercial Banks”, No 99-3, Financial Industry Studies Working Paper from Federal Reserve Bank of Dallas
Rosnia Masruki, Norhazlina Ibrahim, Elmirina Osman and Hishamuddin Abdul Wahab, ‘Financial Performance of Malaysian Islamic Banks Versus Conventional Banks’, Islamic banks and research.
Sarkar, J., S. Sarkar, and S. K. Bhaumik (1998), “Does Ownership Always Matter?
Evidence from the Indian Banking Industry,” Journal of Comparative Economics, Vol.26.
Sathye, M. (2001), “Efficiency of Banks in a Developing Economy: The Case of India,”
Australia: University of Canberra.
Saha, A. and Ravisankar, T.S. (2000), “Rating of Indian commercial banks: a DEA approach”, European Journal of Operational Research, Vol. 124 No. 1, pp. 187- 203.
Sahoo, B. K., Sengupta, J. K. and Mandal, A. (2007), “Productive performance evaluation of the banking sector in India using data envelopment analysis”, International Journal of Operations Research, Vol. 4 No. 2, pp. 63-79.
Samad, Abdus., ‘ Performance of interest-free Islamic banks vis-à-vis interest based conventional banks of Bahrain’, IIUM Journal of Economics and Management 12, no.2 (2004)
Sriharsha Reddy.k (2012), “Relative Performance of Commercial Banks in India
using Camel Approach”, Research Journal of Economics and Business Studies, Volume: 01, Number: 04, Feb-2012
Sunil KUMAR., Rachita GULATI (2008), “An Examination of Technical, Pure Technical,
and Scale Efficiencies in Indian Public Sector Banks using Data Envelopment Analysis”, Eurasian Journal of Business and Economics 2008, 1 (2), 33-69.
Sturm, J. & Williams, B. (2004). Foreign bank entry, deregulation and bank efficiency: Lessons
from the Australian experience. Journal of Banking and Finance, 28, 1775-1799.
Mihir Dash., Annyesha Das, (2009),” A CAMELS analysis of the Indian Banking Industry”Social Sceince Research Network, July.
Sushendra Kumar Misra., Parvesh Kumar Aspal ( 2013), “ Camel Model Analysis of State Bank Group”, World Journal of Social Sciences, Vol. 3. No. 4. July 2013 Issue. Pp. 36 – 55
Zhao, T., Casu, B. and Ferrari, A. (2008). “Deregulation and productivity growth: a study of the Indian commercial banking industry”, International Journal of Business Performance Management, Vol. 10 No. 4, pp. 318-43
Efficiency in Indian Banking - A Nonparametric Analysis”, Economic and Political Weekly March 19, 2005.
Arora, S.; and Kaur, S. (2006), “Financial Performance of Indian Banking Sector in Post-Reform Era”, The Indian Journal of Commerce, Vol.59, No.1, pp.96-105.
Berger, A.N. & Humphrey, D.B. (1992). Measurement and efficiency issues in commercials banking. In Z. Griliches (eds.) Measurement issues in the service sectors (pp. 245-279).Chicago, IL: National Bureau of Economic Research, University of Chicago Press.
Berger, A.N. & Humphrey, D.B. (1997). Efficiency of financial institutions: International survey and directions for future research. European Journal of Operational Research, 98, 175-212.
Berger, A.N. & Mester, L. J. (1997).’ Inside the black box: What explains differences in the efficiency of financial institutions?’ Journal of Banking and Finance, 21, 895-947
Bhattacharyya, A., Lovell, C.A.K. and Sahay, P. (1997). The Impact of Liberalization on the
Productive Efficiency of Indian Commercial Banks. European Journal of Operational Research,
98: 332-345.
Brinda, J.; and Dubey, A. K. (2007), “Performance of Public Sector Banks: An
Econometric Analysis”, The Indian Banker, Vol.2, No.12, pp. 26-34.
Biresh K. Sahoo, Jati K. Sengupta, Anandadeep Mandal., (2007) “Productive Performance Evaluation of the Banking Sector in India Using Data Envelopment Analysis”, International Journal of Operations Research, Vo. 4, No. 2, 63-79.
Brown, M. & Skully, K. (2003, September). ‘A Cross-Country Analysis of Islamic Bank
Performance’. Paper presented at the International Banking Conference 2003 “From Money Lender to Banker: Evolutions of Islamic Banking in Relation to Judeo-Christian and Oriental Traditions, Prato, Italy.
Bodla, BS & Verma, R 2006, ‘Evaluating Performance of Banks through CAMEL Model: A Case Study of SBI and ICICI’, The ICFAI Journal of Bank Management, vol.5, no.3,
Coelli, T. (1996). A guide to DEAP version 2.1: A data envelopment analysis (computer) Program,
CEPA Working Paper 96/08, Department of Econometrics, University of New England,
Armidale.
Coelli, T. (2004, August). Efficiency and productivity measurement: An overview of concepts,
terminology and methods. Paper presented at the short course on Productivity and
Efficiency Measurement Methods with Applications to Infrastructure Industries, University of
Queensland, Brisbane.
Coelli, T., Prasada Rao, D. & Battese, G. E. (1998). An introduction to efficiency and productivity
analysis. Massachusetts, USA: Kluwer Academic Publishers.
Das, A., Nag, A., and Ray, S.C. (2004), “Liberalization, Ownership, and Efficiency in
Indian Banking: A Nonparametric Approach,” Economics Working Papers, University of
Connecticut
Elyasiani, E., & Mehdian, S. (1992). Productive efficiency performance of minority and non-minority
owned banks: A nonparametric approach. Journal of Banking and Finance, 16, 933-948
Farrell, M.J. (1957). The measurement of productive efficiency. Journal of Royal Statistical Society,
120(3), 253-281.
Gilbert, R.A. and Wilson, P.W. (1998), “Effects of Deregulation on the Productivity of
Korean Banks,” Journal of Economics and Business, 50.
Gupta & Kaur 2008, ‘A CAMEL Model Analysis of Private Sector Banks in India’, Journal of Gyan Management, vol. 2, no. 1, pp. 3-8.
Hiroshi Morita Necmi K. Avkiran, (2009), “Selecting inputs and outputs in Data Envelopment Analysis by designing statistical experiments”, Journal of the Operations Research
Society of Japan, Vol. 52, No. 2, 163-173
Isik, I. and Hassan, M. K. (2003), “Financial Deregulation and Total Factor Productivity
Change: An Empirical Study of Turkish Commercial Banks,” Journal of Banking &
Finance, 27(8).
Idries Moh'd Al-Jarrah (2007),” The use of DEA in measuring efficiency in Arabian banking”,
Banks and Bank Systems, Volume 2, Issue 4.
Jemri¢, I. and Vuj£i¢, B. (2002), “Efficiency of Banks in Croatia: A DEA Approach,”
Comparative Economic Studies
Jayaraman and Srinivasan (2009), “Relative Efficiency of Scheduled Commercial
Banks in India (2001-08): A DEA Approach”, Prajnan, Vol. XXXVIII, No.2 (July- Sept.), Pune.
Iveta Řepková (2010), “Measuring the efficiency in the Czech banking industry:
Data Envelopment Analysis and Malmquist index”, Proceedings of 30th International Conference Mathematical Methods in Economics
Kabir,Anwarul, Suman Dey., ‘Performance analysis through CAMEL Rating: A comparative study of selected private commercial banks in Bangladesh’, Journal of Politics and GovernanceVol.1, No 2/3, pp.16-25, September 2012
Kraft, E. and Tirtiroglu, D. (1998), “Bank Efficiency in Croatia: A Stochastic-Frontier
Analysis,” Journal of Comparative Economics
Kumar, S. and Gulati, R. (2007), “Evaluation of technical efficiency and ranking of
public sector banks in India,” International Journal of Productivity and Performance
Management, Vol. 57, Issue 7
Kumbhakar, S. C. and Sarkar, S. (2003), " Deregulation, Ownership, and Productivity
Growth in the Banking Industry: Evidence from India," Journal of Money, Credit and
Banking, Ohio State University Press, Vol. 35(3).
K.R.Shanmugam and A.Das (2004) “Efficiency of Indian commercial banks during the
reform period,” Applied Financial Economics
Mabwe Kumbirai, Robert Web, (2010), “A financial Ratio Analysis of Commercial Bank
Performance in South Africa”, African Review of Economics and Finance, Vol. 2, No. 1, December.
Mukherjee, K., Ray, S.C. and Miller, S.M. (2001), “Productivity growth in large US commercial banks: the initial post-deregulation experience”, Journal of Banking and Finance, Vol. 25 No. 5, pp. 913-39
Mahesh, H.P., and Rajeev, M. (2007), “Liberalisation and Productive Efficiency of Indian Commercial Banks: A Stochastic Frontier Analysis,” Munich Personal RePEc Archive, Paper No. 827
Moody’s paper on GCC outlook March 2018
Munawar Iqbal, ‘Islamic and Conventional banking in the nineties: A comparative study’, Islamic Economic studies, Vol.8, No.2, April 2001
Nikiel, E. and Opiela, T. (2002), “Customer Type and Bank Efficiency in Poland:
Implications for Emerging Banking Market,” Contemporary Economic Policy
Nikolay Nenovsky, Petar Chobanov, Gergana Mihaylova, Darina Koleva. (2008), “Efficiency of the Bulgarian Banking System: Traditional Approach and Data Envelopment Analysis”, working paper series, agency for economic analysis and planning
Nimalathasan Balasundaram (2008), “A Comparative Study of Financial Performance of Banking Sector in Bangladesh - An Application of CAMELS Rating System”, Annals of University of Bucharest, Economic and Administrative Series, Number 2, pp. 141-152
Omprakash K. Gupta, Yogesh Doshit, and Aneesh Chinubhai (2008) in Dynamics of Productive Efficiency of Indian Banks, International Journal of Operations Research Vol. 5, No. 2, 78-90 (2008)
Prasada K.V.N., Ravinderb G. (2012), “ A Camel Model Analysis of Nationalized Banks in India”,
International Journal of Trade and Commerce-IIARTC January-June 2012, Volume 1, No. 1, pp. 23-33
Price Water House Coopers’ report on Global Annual Review 2018
Ram Mohan, T. T. (2002), “Deregulation and Performance of Public Sector Banks,”
Economic and Political Weekly, Vol.37, No.5.
Ram Mohan, T. T. (2003), “Long-Run Performance of Public and Private Sector Bank
Stocks”, Economic and Political Weekly, Vol.38, No.8.
Ram Mohan, T. T. and S. C. Ray (2004), “Comparing Performance of Public and Private
Sector Banks: A Revenue Maximisation Efficiency Approach”, Economic and Political
Weekly, Vol.39, No.12.
Richard S. Barr, Kory A. Killgo,Thomas F. Siems, Sheri Zimmel (1999), “Evaluating the Productive Efficiency and Performance of U.S. Commercial Banks”, No 99-3, Financial Industry Studies Working Paper from Federal Reserve Bank of Dallas
Rosnia Masruki, Norhazlina Ibrahim, Elmirina Osman and Hishamuddin Abdul Wahab, ‘Financial Performance of Malaysian Islamic Banks Versus Conventional Banks’, Islamic banks and research.
Sarkar, J., S. Sarkar, and S. K. Bhaumik (1998), “Does Ownership Always Matter?
Evidence from the Indian Banking Industry,” Journal of Comparative Economics, Vol.26.
Sathye, M. (2001), “Efficiency of Banks in a Developing Economy: The Case of India,”
Australia: University of Canberra.
Saha, A. and Ravisankar, T.S. (2000), “Rating of Indian commercial banks: a DEA approach”, European Journal of Operational Research, Vol. 124 No. 1, pp. 187- 203.
Sahoo, B. K., Sengupta, J. K. and Mandal, A. (2007), “Productive performance evaluation of the banking sector in India using data envelopment analysis”, International Journal of Operations Research, Vol. 4 No. 2, pp. 63-79.
Samad, Abdus., ‘ Performance of interest-free Islamic banks vis-à-vis interest based conventional banks of Bahrain’, IIUM Journal of Economics and Management 12, no.2 (2004)
Sriharsha Reddy.k (2012), “Relative Performance of Commercial Banks in India
using Camel Approach”, Research Journal of Economics and Business Studies, Volume: 01, Number: 04, Feb-2012
Sunil KUMAR., Rachita GULATI (2008), “An Examination of Technical, Pure Technical,
and Scale Efficiencies in Indian Public Sector Banks using Data Envelopment Analysis”, Eurasian Journal of Business and Economics 2008, 1 (2), 33-69.
Sturm, J. & Williams, B. (2004). Foreign bank entry, deregulation and bank efficiency: Lessons
from the Australian experience. Journal of Banking and Finance, 28, 1775-1799.
Mihir Dash., Annyesha Das, (2009),” A CAMELS analysis of the Indian Banking Industry”Social Sceince Research Network, July.
Sushendra Kumar Misra., Parvesh Kumar Aspal ( 2013), “ Camel Model Analysis of State Bank Group”, World Journal of Social Sciences, Vol. 3. No. 4. July 2013 Issue. Pp. 36 – 55
Zhao, T., Casu, B. and Ferrari, A. (2008). “Deregulation and productivity growth: a study of the Indian commercial banking industry”, International Journal of Business Performance Management, Vol. 10 No. 4, pp. 318-43
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2019-07-02
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