Estimating Technical and Scale Efficiency and Sources of Efficiency Change in Banks Using Balance Sheet Data: A South African Study

Abstract

Data Envelopment Analysis (DEA) and Malmquist DEA is applied to estimate the monthly technical and scale efficiency as well as the causes for efficiency change for the four largest banks in South Africa over a period of 36 months.

Bank B appears to be the most technically efficient bank followed by Bank C, Bank A and Bank D, in this order. Bank B, Bank C and Bank A operated mainly in the region of increasing return to scale, implying that they were operating at a scale that is too small. Bank D operated mainly in the region of decreasing return to scale, implying that it was operating at a scale that is too large.

From an input-orientated perspective, all four banks could reduce their inputs without reducing their outputs.