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Efficiency Analysis of Macedonian and Croatian Banking Sectors with DEA

Author

Listed:
  • Violeta Cvetkoska

    (Ss. Cyril and Methodius University in Skopje, Faculty of Economics-Skopje, Republic of North Macedonia)

  • Katerina Fotova Čiković

    (University North, Koprivnica, Republic of Croatia)

Abstract

The aim of this paper is to measure the relative efficiency of commercial banks in two developing countries, the Republic of North Macedonia and the Republic of Croatia under the operating (income-based) approach by using the leading non-parametric methodology data envelopment analysis (DEA). We follow Banker et al.(2010) in the selection of the approach, variables (two inputs: interest expense and other operating expense, and two outputs: interest revenue and other operating revenue) and the model (output-oriented BCC DEA model) as in their first stage. The observed period is five years (2015-2019) and we use a balanced panel data for both samples (total of 65 Macedonian and 100 Croatian bank-year observations). Outliers are identified and excluded by using the Banker and Gifford (1988) super-efficiency procedure, and the BCC output-oriented model is rerun for both samples (total 55 Macedonian and 95 Croatian bank-year observations). We provide relative efficiency scores for each bank in both sectors, as well as an average score for the banking sectors. In addition, we analyse few banks for both sectors that have decreased or increased the efficiency, or show variable results over time. Besides, we explain how inefficient banks can improve the efficiency in future by setting targets for improvement. Our study provides valuable information for banking management and regulatory bodies.

Suggested Citation

  • Violeta Cvetkoska & Katerina Fotova Čiković, 2021. "Efficiency Analysis of Macedonian and Croatian Banking Sectors with DEA," Economy, Business & Development: An International Journal, Ss. Cyril and Methodius University in Skopje, Faculty of Economics-Skopje, vol. 2(2), pages 1-19, November.
    • Handle: RePEc:aoh:journl:v:2:y:2021:i:2:p:1-19
    DOI: 10.47063/ebd.00003
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    Citations

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    Cited by:

    1. Violeta Cvetkoska & Katerina Fotova Čiković & Marija Tasheva, 2021. "Efficiency of Commercial Banking in Developing Countries," Mathematics, MDPI, vol. 9(14), pages 1-21, July.

    More about this item

    Keywords

    banking sector; relative efficiency; DEA; BCC; developing countries;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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