The Research On Efficiency Of Chinese Commercial Banks Based On DEA Approach

Based on the non-Archimedian infinite model C2R of the Data Envelopment Analysis, combined with characteristics of Chinese mainland banks' inputs and outputs, the paper sets up an index system of inputs and outputs as well as an overall efficiency evaluation model for Chinese banks, which considers not only the profit ability, but also the control capacity of banks risk. The overall efficiency values of Chinese banks are given respectively based on the samples of state owned banks and 14 integrated samples both state owned banks and stock banks. The input redundancy of labor, net value fixed assets, operating expenses, owner's equity and output deficiency of operating income, total increase in deposits, total increase in loans, ROE, decrease in bad debts ratio, are also calculated. The pertinence policy suggestions of efficiency improvement of banks are put forward. Based on the historical data between 1998 and 2002 of 14 Chinese commercial banks, the cost efficiency, technical efficiency and allocative efficiency are computed by DEA model, and the efficiency difference among commercial banks is outlined and the efficiency variance crossing time is examined.The results show that: 1) the efficiencies of new stock banks are far higher than non-stock bank and the all four state owned banks are commonly lower in efficiency. The efficiency of Agriculture Bank of China is the lowest one in all banks, and Bank of Communications is the efficiency lowest in all stock banks. 2) Cost efficiency of all Chinese banks have increased during the 5 years, but 3 kinds of efficiency of state-owned banks are lower than joint-stock commercial banks as a whole; 3) the cost inefficiency of Chinese commercial banks is mainly caused by the technical inefficiency; 4) There is no significant difference in allocative efficiency between state-owned commercial banks and joint-stock commercial banks.The contributions and characteristics of the paper are: 1) the bad debit ratio is used to reflect the quality of the outputs, which is an improvement to the current literature of neglecting the difference in loans quality. 2) The inefficiency reasons of banks are list out by quantity analysis, and the pertinent macro strategies and concrete measures on improving banks efficiency are given, which is another improvement to current research that only list the efficiency value, but not given improving strategy from quantities analysis. 3) banks efficiency values under several portfolios of inputs and outputs are given respectively, which not only overcomes the restraints that the number of sample is at least the 2 times of the number of inputs and outputs indexes, but also measures banks efficiency from several directions. 4) It makes the efficiency values estimation more comparable through making four state owned banks as one group of efficiency evaluation. Combining both state owned banks and stock banks as a wholegroup of efficiency evaluation shows the real efficiency distance between two different kinds of bank and provide realistic basis for the bank reform of China. 5) 3 efficiencies i.e. cost efficiency, technical efficiency and allocative efficiency, are calculated and the relationship among them and their characteristics are outlined.