Measuring Bank Branch Performance Using Data Envelopment Analysis (DEA): The Case of Turkish Bank Branches

Abstract

The aim of this study is to develop a performance model for measuring the relative efficiency and potential improvement capabilities of bank branches by identifying their strengths and weaknesses. Another purpose is to investigate the production and profitability aspects of branches. Under both production and profitability approaches, efficiency characteristics of branches, which are grouped according to different sizes and regions, have similar tendencies. In both analyses, it is apparent that branch size and scale efficiency are related to each other. As branch size increases scale efficiency increases too and after the most productive scale size, however, as size increases efficiency decreases. Too small and too large branches need special attention. Putting production and profit efficiency scores on two scales reveals the performing characteristics of branches. Each region needs different handling. Branches with low production-low profit efficiency should be evolved towards high production-high profit efficiency region.

Keywords: Data envelopment analysis, bank branch performance, efficiency, technical efficiency, pure technical efficiency, scale efficiency

JEL Classification: C14, C61, G21