A Comparative Analysis of the Efficiency of Domestic Banks Using DEA Methods

We perform a comparative analysis of the efficiency of Seoul-centered commercial banks and local banks in Korea from 2007 to 2013 using DEA methods. Super-efficiency model is employed in comparing the efficiency of domestic banks, and Malmquist productivity index is used to analyze the changes in the bank-specific productivity trend. We document that capital-centered commercial banks are more efficient than local banks, but the improvement of productivity with passage of time for local banks is higher than that of capital-centered commercial banks. This is partly due to feasibility of market expansion: local banks have more market outside the locals left for expansion, while most capital-centered commercial banks are confronted with saturation of existing domestic market. Further, based on our analysis we document that bank efficiency seems to be more significantly affected by external business environment than the bank s own ability to utilize its resources. It implies that the bank s ability to adapt to changing external business environments can significantly influence its operating efficiency.