Measuring the Risk, Efficiency, and Effectiveness of Banks in Malaysia Using Data Envelopment Analysis Model
DOI:
https://doi.org/10.24191/abrij.v8i2.4312Keywords:
Risk, Efficiency, Effectiveness, Data Development Analysis (DEA), BankAbstract
The banking system plays a significant role in every country by facilitating economic growth and affecting the money supply. However, the phenomenon of rapidly growing foreign banks in Malaysia has led to intense competition between domestic and foreign banks. This scenario has prodded bank managements to improve their performance so as to ensure their banks will remain strong and relevant. The main purpose of this study is to measure and analyze three indicators of profitability, namely the risk, efficiency, and effectiveness of banks in Malaysia from 2015 to 2019 using Data Envelopment Analysis (DEA) method. These three indicators have not been examined together in Malaysian studies that looked at the performance of banks in the country. The study utilized secondary data for eight domestic banks and eight foreign banks in Malaysia. Foreign banks were found to attain slightly higher scores than domestic banks for all the evaluated indicators encompassing risk, efficiency, and effectiveness. Concerning risk, the results can be interpreted as foreign banks were more efficient than domestic banks at managing risk. Overall, foreign banks performed marginally better than domestic banks based on the performance score results.
References
Abusharbeh, M. T. (2017). The impact of banking sector development on economic growth: Empirical analysis from Palestinian economy. International Journal of Finance & Economics, 6(2), 2306-2316. Amin, G. R., & Ibn Boamah, M. (2021). A two‐stage inverse data envelopment analysis approach for estimating potential merger gains in the US banking sector. Managerial and Decision Economics, 42(6), 1454-1465. https://doi.org/10.1002/mde.3319 Angeles, L. (2019). On the Nature of Banks. Kyklos, 72(3), 381-399. https://doi.org/10.1111/kykl.12204 Bank Negara Malaysia. (2020). About the bank. Retrieved from http://www.bnm.gov. my/index.php?ch=en_about&pg=en_intro&ac=641&lang=en Diallo, B. (2018). Bank efficiency and industry growth during financial crises. Economic Modelling, 68, 11-22. https://doi.org/10.1016/j.econmod.2017.03.011 Emrouznejad, A., & Yang, G. L. (2018). A survey and analysis of the first 40 years of scholarly literature in DEA: 1978–2016. Socio-Economic Planning Sciences, 61(1), 4–8. https://doi.org/10.1016/j.seps.2017.01.008 Färe, R., Grosskopf, S., & Whittaker, G. (2007). Network dea. In Modeling data irregularities and structural complexities in data envelopment analysis (pp. 209-240). Springer, Boston, MA. Ghazi, R. (2019). Financial institutions and their role in the development and financing of small individual projects. Retrieved July 2019, from, https://www.researchgate.net/publication/334730479_Financial_institutions_and_their_role_in_the_develo pment_and_financing_of_small_individual_projects Ghebregiorgis, F., & Atewebrhan, A. (2016). Measurement of bank profitability, risk and efficiency: The case of the Commercial Bank of Eritrea and Housing and Commerce Bank of Eritrea. African Journal of Business Management, 10(22), 554-562. https://doi.org/10.5897/AJBM2016.8058 Gupta, S. K., Karpa, M. I., Derhaliuk, M. O., Tymkova, V. A., & Kumar, R. (2020). Effectiveness vs efficiency for organisational development: A study. Journal of Talent Development and Excellence, 12(3s), 2478-2486. Ho, C. T., & Zhu, D. S. (2004), Performance measurement of Taiwan's commercial banks, International Journal of Productivity and Performance Management, 53 (5), 425-434. https://doi.org/10.1108/17410400410545897 Isshaq, Z., & Bokpin, G. A. (2012). Expansion and efficiency in banking: evidence from Ghana. Managerial and Decision Economics, 33(1), 19-28. https://doi.org/10.1002/mde.1556 Kamarudin, F., Sufian, F., Nassir, A. M., Anwar, N. A. M., & Hussain, H. I. (2019). Bank efficiency in Malaysia a DEA approach. Journal of Central Banking Theory and Practice, 1, 133-162. https://doi.org/10.2478/jcbtp2019-0007 Le, C., Šević, A., G Tzeremes, P., & Ngo, T. (2022). Bank efficiency in Vietnam: Do scale expansion strategies and non‐performing loans matter?. International Journal of Finance & Economics, 27(1), 822-843. https://doi.org/10.1002/ijfe.2179 Lou, S. W., Yang, Y., & Tseng, C. W. (2021). Data envelopment analysis based assessment of human resource management strategy in the banking industry: A case study of a well‐known Taiwanese Bank. Managerial and Decision Economics, 42(5), 1172-1182. https://doi.org/10.1002/mde.3299 Advances in Business Research International Journal, 8(2) 2022, 36-48 Milenković, N., Radovanov, B., Kalaš, B., & Horvat, A. M. (2022). External Two Stage DEA Analysis of Bank Efficiency in West Balkan Countries. Sustainability, 14(2), 978. https://doi.org/10.3390/su14020978 Mirzaei, A., Saad, M., & Emrouznejad, A. (2022). Bank stock performance during the COVID-19 crisis: does efficiency explain why Islamic banks fared relatively better?. Annals of Operations Research, 1-39. https://doi.org/10.1007/s10479-022-04600-y Mohd Noor, N. H. H., Bakri, M. H., Wan Yusof, W. Y. R., Mohd Noor, N. R. A., & Zainal, N. (2020). The impact of the bank regulation and supervision on the efficiency of Islamic Banks. The Journal of Asian Finance, Economics, and Business, 7(11), 747-757. https://doi.org/10.13106/jafeb.2020.vol7.no11.747 Moradi-Motlagh, A., Saleh, A. S., Abdekhodaee, A., & Ektesabi, M. (2011). Efficiency, effectiveness and risk in Australian banking industry. World Review of Business Research, 1(3), 1-12. Mouzas, S. (2006). Efficiency versus effectiveness in business networks. Journal of business research, 59(10-11), 1124-1132. https://doi.org/10.1016/j.jbusres.2006.09.018 Neves, E., Gouveia, M., & Proença, C. (2020). European bank’s performance and efficiency. Journal of Risk and Financial Management, 13(4), 67. https://doi.org/10.3390/jrfm13040067 Novickytė, L., & Droždz, J. (2018). Measuring the efficiency in the lithuanian banking sector: The DEA application. International Journal of Financial Studies, 6(2), 37. https://doi.org/10.3390/ijfs6020037 Osmanovic, N., Kb, P., & Stojanovic, I. (2020). Impacts of islamic banking system on economic growth of UAE. Talent Development and Excellence, 12(3), 1555-1566. Paradi, J. C., Rouatt, S., & Zhu, H. (2011). Two-stage evaluation of bank branch efficiency using data envelopment analysis. Omega, 39(1), 99-109. https://doi.org/10.1016/j.omega.2010.04.002 Ramli, N. A., Khairi, S. S. M., & Razlan, N. A. (2018). Performance measurement of Islamic conventional banking in Malaysia using two-stage analysis of DEA model. International Journal of Academic Research In Business & Social Sciences, 8(4), 1186-1197. Rhanoui, S., & Belkhoutout, K. (2019). Risks faced by islamic banks: A study on the compliance between theory and practice. International Journal of Financial Research, 10(2), 137. https://doi.org/10.5430/ijfr.v10n2p137 Wahid, M. A. (2016). Comparing the efficiency of Islamic and conventional banks based on the evidence from Malaysia. Journal of Muamalat and Islamic Finance Research, 13(1), 35-65. in Wood, A., & McConney, S. (2018). The impact of risk factors on the financial performance of the commercial banking sector Barbados. Journal https://doi.org/10.22495/jgr_v7_i1_p6 of Governance and Regulation, 7(1), 76-93. Yadav, R., & Katib, M. N. (2015). Technical Efficiency of Malaysia's Development Financial Institutions: Application of Two-Stage DEA Analysis. Asian Social Science, 11(16), 175. 48
Downloads
Published
Issue
Section
License
Copyright (c) 2022 Nur Amira Syifa’ Azli, Noor Asiah Ramli, Norbaizura Kamarudin
This work is licensed under a Creative Commons Attribution 4.0 International License.
