Efficiency Research Of China's Commercial Banks Based On DEA

Along with depth banking sector reform and fierce market competition,market allocation of resources becomes increasingly important.It makes people get rid of simple number optimization and pay more attention on cost efficiency optimization and effective cost management.This paper uses DEA model with price variable to analyze cost efficiency and its decomposition.The results will meet the practical needs of china's commercial banks.Based on efficiency theory and statistic data of four state-owned commercial banks and five joint-stock commercial banks,this paper uses Cost Efficiency DEA model and VRS DEA model to calculate cost efficiency,allocation efficiency,technical efficiency,pure technical efficiency and scale efficiency.Then it compares changes and characteristics of the efficiency trends by analyzing the efficiency of each bank from 1997 to 2006 and compares efficiency gap between banks by analyzing the efficiency in 1998 and 2006.Combining the analysis results,it puts forward the approach to improve the efficiency and narrow the gap between banks.The results show that comparing with its own development the main difference about the cost efficiency comes from changes in allocation efficiency and it increases along with the improvement of allocation efficiency.Comparing with the gap between banks in 1998 and 2006,the efficiency of state-owned commercial banks is generally lower than joint-stock commercial banks.It is mainly because of the poor ability of scale control and scarce resources allocation.Therefore,improving the allocation efficiency and scale efficiency will contribute to increase the level of cost efficiency.In view of the actual situation of the banks,we should enhance competition in the market, increase the investment in intermediary business and private banking business innovation and establish effective internal management mechanism to advance the allocation efficiency of banks and market.Besides,the state-owned commercial banks should also reduce the bank size to change the status of diminishing returns to scale.