Estimating and Analyzing the Efficiency and Productivity of Bank Branches: Evidence from Greece
Managerial Finance, Forthcoming
Posted: 27 May 2008
Date Written: 2008
The purpose of this study is to examine the efficiency and productivity of a Greek bank's branches. The sample consists of 458 branches of a Greek commercial bank, operating in 13 regions of Greece over the period 2002-2005, a total of 1,795 observations. We first use data envelopment analysis (DEA) to explore the efficiency and productivity of the branches. Then, we use fixed and random effects models to determine the impact of internal and external factors on the efficiency and productivity scores.
The results indicate that the branches in our sample could have achieved improved overall performance during 2002-2005. Also, our results indicated that the inclusion of loan loss provisions as an input variable increases the efficiency score, but for the total factor productivity change, the results are mixed. The second stage regressions indicate that both the logarithm of personnel and the logarithm of income per capita in the local market have a significant impact on efficiency, while the loans to total assets ratio has a significant impact on pure technical efficiency only.
When we regress the various productivity change measures over our explanatory variables, we find that the logarithm of per capita gross fixed capital formation has a positive and statistically significant impact on all measures. We also find that the return on assets, the loans to deposit ratio, the logarithm of personnel, and the logarithm of income of per capita, all have a positive and statistically significant impact on overall efficiency change.
We differentiate our study from previous ones in three aspects. First, this is the first study on Greek branches which examines the impact of market conditions. Second, we examine the impact of risk-taking on the efficiency of branches. Third, the present study examines the productivity growth of the branch network using the Malmquist TFP index.
Keywords: Branch Banking, Data Envelopment Analysis, Efficiency, Productivity
JEL Classification: G21, C67, D61
Suggested Citation: Suggested Citation