The relative efficiency of commercial banks in Thailand: DEA approach

Abstract

This study aims to examine the relative efficiency of 13 commercial banks in Thailand during 2003-2006. Data Envelopment Analysis (DEA) which is one of non-parametric analytic techniques is utilized to measure the relative efficiency of these commercial banks under two different approaches which are operation approach and intermediation approach. Operation approach reflects the way of evaluating the efficiency of commercial banks from the perspective of costs and revenues management, whereas intermediation approach reflects the way of evaluating the efficiency of commercial bank which takes commercial banks as entities which use labor and capital to transform deposits into loans and securities. According to the analysis, we find that during 2003-2006 the efficiency of Thai commercial banks under operation approach was very high and stable with the average efficiencies over 90% in every year while the efficiency under intermediation approach was moderately high and somewhat volatile with the average efficiencies ranging from 72% to 86%. In terms of size, large, medium and small banks, in average, were not different in efficiency under operation approach. Moreover, we find that they were efficient under operation approach with the average efficiencies of 100% during 2003-2006. However, small banks were the most efficient banks under intermediation approach. In addition, incumbents which are commercial banks originally competing in banking business and new entries which are commercial banks previously competing in finance and securities business were also efficient under operation approach with the average efficiencies of 100%. Moreover, they both were not different in efficiency under operation approach. Nevertheless, incumbents, in average, were more efficient than new entries in perspective of intermediation approach.