Research On Efficiency Of Commercial Banks Based On Three-Stage DEA Model

Banking industry, the core of the financial industry, and the development of which is crucial to national economy, but now it’s facing unprecedented pressures:firstly, along with the globalization of financial services, mergers and acquisitions may cause huge impact on the stability of world economy and finance; the vulnerability of which can be easily exposed when economic crisis occurred; secondly, the ongoing downtrend of economy leads to a predicament where industrial restructuring and reforming are in urgent need but facing enormous challenges; thirdly, and more importantly, a more market driven interest rate, together with a growing deposit insurance system fueled the development of securities and insurance industry. More direct financing goes into capital market; asset management business, private equity and angel funds are thriving; third party finance service by internet is prosperous; from all aspects above, traditional banking industry are highly threatened. Based on the status quo of financial environment, this paper is dedicated to improve the competitiveness of traditional banking, by a thorough analysis and rating of operational efficiency, identifying influencing factors and ways of how to improve these elements to achieve a better operational performance.Chapter 5 measures the technical efficiency of 50 Chinese commercial banks over the period of 2005-2014 by using the three-stage DEA model and then analyzes how the technical efficiency is affected by different contextual variables based on the Tobit model. The 50 commercial banks include 5 state-owned banks,12 joint-stock banks and 33 city commercial banks, and basically cover existing bank type. The pure technical efficiency of commercial banks is measured based on the input-oriented BCC model. Operating expenses, shareholders’ equity, and the number of employees are selected as input variables, loans and net income are selected as output variables, and the difference between one-year deposit and loan, the growth rate of total fixed asset investment, the type of bank, the time of founding and listed or not are selected as environment variables. The results show that the environment variables have a significant influence on the measurement of technical efficiency. After input values being adjusted by SFA model in the second stage, the pure technical efficiency of the commercial banks measured in the third stage has been greatly improved entirely and on a stable trend. The mean efficiency of non state-owned banks is higher than state-owned banks, and this value of city commercial banks is higher than joint-stock banks, thus improving the efficiency of state-owned banks is extremely urgent.Profitability (Return On Equity), asset allocation capabilities (LDR), innovation capacity (non-interest income/operation income), governance structure (size of the board), the ability to withstand risks (equity ratio), asset quality (NPL ratio), safety of assets (capital adequacy ratio) and quality of human resources (the proportion of undergraduate employees) are selected as the influencing factors, and efficiencies measured at the third stage are selected as dependent variables for the Tobit panel regression. The results suggest that LDR, non-interest income/operation income, and capital adequacy ratio have no significant impact on the pure technical efficiency of commercial banks; ROE equity ratio and the proportion of undergraduate employees have significant positive impact on pure technical efficiency, hence the more these factors increase, the higher efficiency values it will be; while the size of the board and the NPL ratio have significant negative impact on the efficiency, therefore the increase of board number and NPL can lead to low efficiency values.In the end, some suggestions such as controlling asset scale, finding the new profit growth opportunities, perfecting corporation governance structure, optimizing asset structure, improving the quality of assets, and strengthening human resources management, have been put forward in order to improve the efficiency of commercial banks.