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Evaluating the financial performance of bank branches

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  • PASTOR, Jesus
  • LOVELL, Knox
  • TULKENS, Henry

Abstract

In this paper we evaluate the financial performance of virtually all of the branch offices of a large European savings bank for a recent six-month accounting period. We employ a complementary pair of nonparametric techniques to evaluate their financial performance, in terms of their ability to conserve on the expenses they incur in the process of building their customer bases and providing customer services valued by the bank. We find substantial variation in the ability of branch offices to perform this task, and substantial agreement on the identity of the branches at the bottom of the performance distribution. We then employ parametric techniques to determine that the list of indicators on which their financial performance is currently evaluated can be substantially reduced without statistically significant loss of information to bank management. Both findings suggest ways in which the bank can increase the profitability of its branch network.

Suggested Citation

  • PASTOR, Jesus & LOVELL, Knox & TULKENS, Henry, 2003. "Evaluating the financial performance of bank branches," LIDAM Discussion Papers CORE 2003094, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2003094
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    References listed on IDEAS

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    1. Paradi, Joseph C. & Schaffnit, Claire, 2004. "Commercial branch performance evaluation and results communication in a Canadian bank--a DEA application," European Journal of Operational Research, Elsevier, vol. 156(3), pages 719-735, August.
    2. Antreas D. Athanassopoulos & Dimitris Giokas, 2000. "The Use of Data Envelopment Analysis in Banking Institutions: Evidence from the Commercial Bank of Greece," Interfaces, INFORMS, vol. 30(2), pages 81-95, April.
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    4. Henry Tulkens, 2006. "On FDH Efficiency Analysis: Some Methodological Issues and Applications to Retail Banking, Courts and Urban Transit," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 311-342, Springer.
    5. Fried, Harold O. & Knox Lovell, C. A. & Eeckaut, Philippe Vanden, 1993. "Evaluating the performance of US credit unions," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 251-265, April.
    6. A S Camanho & R G Dyson, 1999. "Efficiency, size, benchmarks and targets for bank branches: an application of data envelopment analysis," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 50(9), pages 903-915, September.
    7. Henry Tulkens & Philippe Eeckaut, 2006. "Nonparametric Efficiency, Progress and Regress Measures For Panel Data: Methodological Aspects," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 395-429, Springer.
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    13. Hartman, Thomas E. & Storbeck, James E. & Byrnes, Patricia, 2001. "Allocative efficiency in branch banking," European Journal of Operational Research, Elsevier, vol. 134(2), pages 232-242, October.
    14. Fried, H. O. & Knox Lovell, C. A., 1994. "Enhancing the performance of credit unions: the evolution of a methodology," LIDAM Reprints CORE 1155, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    15. Wade Cook & Moez Hababou & Hans Tuenter, 2000. "Multicomponent Efficiency Measurement and Shared Inputs in Data Envelopment Analysis: An Application to Sales and Service Performance in Bank Branches," Journal of Productivity Analysis, Springer, vol. 14(3), pages 209-224, November.
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    18. Jeffrey Kantor & Shlomo Maital, 1999. "Measuring Efficiency by Product Group: Integrating DEA with Activity-Based Accounting in a Large Mideast Bank," Interfaces, INFORMS, vol. 29(3), pages 27-36, June.
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    Cited by:

    1. Thanh, Ngo, 2011. "Effectiveness of the Global Banking System in 2010: A Data Envelopment Analysis approach," MPRA Paper 56389, University Library of Munich, Germany.
    2. Chih-Ching Yang, 2014. "An enhanced DEA model for decomposition of technical efficiency in banking," Annals of Operations Research, Springer, vol. 214(1), pages 167-185, March.
    3. Wen-Chih Chen & Andrew Johnson, 2010. "The dynamics of performance space of Major League Baseball pitchers 1871–2006," Annals of Operations Research, Springer, vol. 181(1), pages 287-302, December.
    4. Fernando A. F. Ferreira & Sérgio P. Santos & Paulo M. M. Rodrigues & Ronald W. Spahr, 2014. "How to create indices for bank branch financial performance measurement using MCDA techniques: an illustrative example," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 15(4), pages 708-728, September.
    5. Christos Floros, 2020. "Banking Development and Economy in Greece: Evidence from Regional Data," JRFM, MDPI, vol. 13(10), pages 1-13, October.
    6. Yiting Xing & Ling Li & Zhuming Bi & Marzena Wilamowska‐Korsak & Li Zhang, 2013. "Operations Research (OR) in Service Industries: A Comprehensive Review," Systems Research and Behavioral Science, Wiley Blackwell, vol. 30(3), pages 300-353, May.
    7. Paradi, Joseph C. & Zhu, Haiyan, 2013. "A survey on bank branch efficiency and performance research with data envelopment analysis," Omega, Elsevier, vol. 41(1), pages 61-79.
    8. Yang, Chyan & Liu, Hsian-Ming, 2012. "Managerial efficiency in Taiwan bank branches: A network DEA," Economic Modelling, Elsevier, vol. 29(2), pages 450-461.
    9. Shamima Islam & Rakibul Islam, 2022. "Measurement of Financial Performance of Rupali Bank Limited," International Journal of Science and Business, IJSAB International, vol. 15(1), pages 45-56.
    10. Eskelinen, Juha, 2017. "Comparison of variable selection techniques for data envelopment analysis in a retail bank," European Journal of Operational Research, Elsevier, vol. 259(2), pages 778-788.
    11. Panagiotis Tziogkidis & Kent Matthews & Dionisis Philippas, 2018. "The effects of sector reforms on the productivity of Greek banks: a step-by-step analysis of the pre-Euro era," Annals of Operations Research, Springer, vol. 266(1), pages 531-549, July.
    12. Fatemeh Boloori & Jafar Pourmahmoud, 2016. "A modified SBM-NDEA approach for the efficiency measurement in bank branches," Operational Research, Springer, vol. 16(2), pages 301-326, July.

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    More about this item

    Keywords

    banking; performance indicators; efficiency;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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