Efficiency in the Slovak Banking Industry: A Comparison of Three Approaches

Abstract

Abstract:The paper emphasizes that any approach to defi ning technical effi ciency in banking is just a diff erent outlook on manifold goals and functions that commercial banks pursue. Three commonly applied approaches, i.e. the service-oriented approach, the intermediation approach and the profi toriented approach, are not in confl ict but are complementary in providing information on how commercial banks perform in fi nancial intermediation, provision of banking services and profi t seeking. In addition to the methodological contribution of the paper, it investigates the effi ciency of the Slovak banking industry over the years 2000-2011 so as to fi nd whether employment of a specifi c approach changes the view on effi ciency of individual commercial banks. To this end, the non-parametric method of evaluation is employed based on the slack-based measure model of data envelopment analysis. The results suggest that general impressions of the effi ciency status of individual banks as obtained within the three approaches are similar in most cases.Keywords: effi ciency, the Slovak banking industry, SBM model, the intermediation approach, the service-oriented approach, the profi t-oriented approach JEL Classifi cation: G21, C44

The Super-efficiency Model and its Use for Ranking and Identification of Outliers

“…Boďa and Zimková (2015) measured technical efficiency of eleven commercial banks in three sub-periods: 2000 -2003, 2004 -2008 and 2009 -2011. The technical efficiency was also analysed in the work of Palečková (2015), who found the increase in the average efficiency of the Slovak commercial banks during the period 2004.…”

“…Firstly, an intermediation approach was introduced by Sealey and Lindley (1977) where banks are characterised as financial intermediaries. Thus, the intermediation approach assumes that the main aim of a commercial bank is to create output, defined as loans and investment or other assets, whilst using liabilities (including deposits), labour and capital as inputs (Boďa and Zimková, 2015). There are two orientations in the application of the intermediation approach regarding the measure of the intermediation factors: the asset-oriented and profit-oriented intermediation approach.…”

“…Profit-oriented intermediation approach was defined by Berger and Mester (2003), who reported that it can help capture the objective of maximising profits by including costs and revenues. Boďa and Zimková (2015) described that the profit-oriented intermediation approach attempts to capture final monetary effects of financial intermediation, in which interest expenses and/or non-interest expenses are found as inputs and interest income and/or non-interest income are used as outputs. Such a specification retains the minimising feature of inputs and the maximising feature of outputs.…”

“…The output factors could include deposits, loans and securities. Boďa and Zimková (2015) stated that this variant of the production approach that considers deposits to be an output together with loans and the interest income is called the service-oriented approach.…”

“…The value-added approach explicitly uses operating cost data (Berger and Humphrey, 1997). As Boďa and Zimková (2015) described the application of this approach requires a more sensitive analysis of individual processes that are carried out by the commercial banks under evaluation.…”