Efficiency of Macedonian Banks: A DEA Approach

Abstract

The purpose of this paper is to estimate the efficiency of the banking sector of Republic of Macedonia for the period 2008-2011. Technical, pure technical and scale efficiency of 15 Macedonian banks have been measured using Data Envelopment Analysis (DEA), both CCR and BCC model. Intermediation approach has been applied in order of measuring banks efficiency in transforming the deposits into investments and credits with intermediation of labor. The results from the analysis indicate an increase of the average efficiency from 2008 to 2010 and an efficiency decrease in 2011. The scale efficiency follows the same trend. The study implies that the main source of inefficiency is due to scale inefficiencies. Regarding group of banks, the group of large banks has a highest pure efficiency scores but the greatest scale inefficiency. The group of small banks is technically the least efficient.

Keywords: data envelopment analysis, Macedonia, bank efficiency, scale efficiency, technical efficiency, pure technical efficiency