Measuring productivity changes in Australian banking: an application of Malmquist indices

Abstract

The purpose of this paper is to analyse the change in the productivity of Australian banks during the period 1995 to 1999. Productivity has been measured by the Malmquist index, using a Data Envelopment Analysis (DEA) technique. The data consists of a panel of 17 locally incorporated banks in Australia. The study finds that the technical efficiency of banks in the panel has declined by 3.1 per cent and the Total Factor Productivity (TFP) index declined by 3.5 per cent during 1995-1999. Though the mean technical efficiency change and the mean TFP (both 1.013), remain positive the decline in productivity is a cause for concern. The decline could be traced to negative or near stagnant technical progress index. No association was found between size and productivity. Hence the argument for merger of banks so as to improve productivity by achieving a larger size is not tenable. The study could help banks in strategic planning and also the policy makers interested in knowing the effects of deregulation on productivity of Australian banks.

Determinants of Productivity and Profitability of Indian Banking Sector: A Comparative Study

“…The productivity of Gulf corporation council was measured by Ramakrishnan (2007) and only 15 out of 55 banks were rated as efficient banks. Sathye (2002) found a decline in the total factor productivity of Australian bank by 3.5% during the study period of 1995-1999.…”

“…There are numerous studies which focus their analysis on the bank productivity of different countries. Like, Tina Zhang and Wang (2014) on Chinese banks; Rezitis (2006) and Chatzoglou et al (2010) on Greek banks; Ataullah and Le (2006), Kumar and Gulati (2008), Das (2010), and Kumar and Gulati (2010) for Indian banks; Berger and EJBE 2015, 8 (16) Mester (1999), and Elyasiani and Mehdian (1990) for U. S. banks; Sathye (2002) for Australian banks are some notable studies amongst others. Also, there are studies on profitability analysis of banks by different researchers like Ho and Tripe (2002); Guru et al (2002);DeYoung and Rice (2004); Haung and Chen (2006) and Pasiouras and Kosmidou (2007).…”

Productivity Change in the Turkish Banking Industry

“…Drake (2001) examined the productivity of British banking sector between 1984 and 1995. Sathye (2002) examined the productivity of 17 banks in Austria's banking system between 1995 and 1995. Vivas and Humphrey (2002) analyzed Spanish banking productivity between 1986 and 2001.…”

The Information Risk in the Latest Crisis: A Driver or a Driven Factor for Global Financial Markets Equilibrium?

“…Sathye (2002) measured productivity changes in Australian banks by the Malmquist index using DEA technique during the period 1995 to 1999. He concluded that there is a decline in technical efficiency and total productivity factor during the study period and also no correlation was found between size and productivity which is important in the context of bank merger debate in Australia.…”

“…Additionally, caused by compulsory superannuation Australia has the 4th largest pension fund pool in the world which highlights the role of banking industry in this country. Due to this key position, measuring banks and financial institutions' performance is an issue of major interest for academics and policy makers (e.g., Avkiran, 1999Avkiran, , 2000Avkiran, , 2004Kirkwood & Nahm, 2006;Moradi-Motlagh, Saleh, Abdekhodaee, & Ektesabi, 2011;Neal, 2004;Paul & Kourouche, 2008;Sathye, 2001Sathye, , 2002Sturm & Williams, 2004;Walker, 1998;Wu, 2008).…”