Banking Efficiency: Concepts, Drivers, Measures, Literature and Conceptual Model

Abstract

This paper attempts to demonstrate the topic of banking efficiency. We try to shed lights on its concepts and types that include a) Pure technical efficiency, b) Scale efficiency, c) Allocative efficiency, d) Cost efficiency and e) Scope efficiency. Then, we move to the drivers of banking efficiency that includes three main groups; the first one is the strategy, the second one is the execution of strategy and finally the environment. Theses three groups are considered as the engine of banking success.

Regarding the measures of banking efficiency, they could be divided into structural and non-structural measures. Besides, they are classified into traditional, parametric, and non-parametric measures. Moreover, Data Envelopment Approach (DEA) is the most common measure of efficiency. After illustrating literature review, we elaborate and discuss the conceptual framework of banking efficiency developed by Mokhtar, AlHabashi & Abdullah (2006). This framework categorizes the analysis of banking efficiency into five steps or stages (F1- F5).

Keywords: Banking efficiency, Data Envelopment Analysis (DEA), determinants of banking efficiency, measure of banking efficiency