Assessing the comparative performance of banking branches

Abstract

Purpose – The purpose of this paper is to measure the performance and relative operating efficiency of mini branches of a commercial bank for internal benchmarking. Design/methodology/approach – The authors employ data envelopment analysis (DEA) for measuring the relative efficiency of mini bank branches in a region of a state in the USA. In addition, the authors use Tobit regression analysis for finding determinants of the efficiency. Findings – The authors identified efficient and inefficient branches using pertinent variables along with potential improvements for the inefficient branches. Among the variables, the authors confirmed that number of full-time employees and service charges were statistically significant for explaining the efficiency of bank branches. Research limitations/implications – The major limitation of this study is the one time measure of efficiency using observations for a month and selected variables. To improve this study: first, the authors need to test other variables related to, but not limited to, assets, bad loans, and number of new account opened; second, it is necessary to measure the efficiency of the branches over time. Originality/value – The contributions of this study include an application of DEA for measuring and benchmarking the performance of bank branches, especially mini branches located in grocery stores and the use of internal data, which is rarely available to the public.