A Cross Country Comparison of Banking Efficiency: Asia Pacific Banks

This paper attempts to estimate the efficiency of the top 300 Asia Pacific Banks, as ranked by the Asian bankers, through a cross country analysis. We use a non-parametric frontier technique called data envelopment analysis (DEA) to derive technical and scale efficiency measures for these banks in 2006. The sensitivity of DEA efficiency of various input-output variables combination is investigated followed by the test of robustness on the DEA model. Our efficiency estimates indicate that a wide dispersion in efficiency exist among these top 300 banks from one country to another. The empirical findings indicate that only 22 of the 300 banks are operating at an efficient level. In general, the overall technical efficiency and scale efficiency are higher for banking groups in New Zealand and Australia, while the Philippines banking group has the lowest estimates. The result also show that the Singapore banking group has a low technical efficiency estimates but in terms of scale it is almost fully efficient. The main source of inefficiency amongst the 300 banks is dominated by ineffective utilization of resources rather than economies of scale. The results, which provide the sources of inefficiency, may provide useful insights for bankers, government regulators and policy makers to enhance decision-making and policy formulation.