Efficiency assessment of banks in Serbia

Abstract

The most common way of measuring financial performances and quality of banks management is the calculation of financial ratios and their comparison with benchmarks. If numerous criteria, such as profits, liquidity, asset quality, risk level, management strategies, are considered simultaneously, the process can be very complex. The banking sector in Serbia has gone through the period of turbulence, changes of the ownership structure caused by privatization, organizational structure changes inside the bank institutions, as well as the changes due to the law requirements. In those circumstances, it is very difficult to measure banks' efficiency, rank them and set up stable benchmarks. The non-parametric operational research method, named Data Envelopment Analysis (DEA), recently became a leading method for measuring and comparing performances of entities in different area, including banking industry. This paper will present the results of such analysis carried out on the basis of data regarding 30 banks in Serbia operating in the economically turbulent five-year period from 2005 to 2009. Relative efficiency ratios are calculated for each bank and each year. The banks are ranked according to their average efficiency and similarities and differences among them are analyzed and commented.