Technical Efficiency Essay

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Recommended: The importance of bank efficiency

Empirical studies of banking efficiency (see for example Karimzadeh, 2012) often measure each of these three types of efficiency. However, some scholars (see for example Sufian, 2011) have measured technical efficiency alone. Following Sufian’s methodological example, only the technical efficiency of private banks in Northern Cyprus will be measured in the current study.
The theory of technical efficiency contains both conceptual and methodological difficulties, especially when applied to banking. One complexity involved in technical efficiency is differentiation between pure technical efficiency and scale efficiency. Scale efficiency refers to the relationship between the scale of an organization and its productivity (Thanassoulis, 2012). On the other hand, pure technical inefficiency refers to non-scale-related aspects of the relationship between organizational inputs and outputs; for example, managerial incompetence is a factor that can lower pure technical efficiency in a manner that is conceptually unrelated to scale efficiency (Kumar & Gulati, 2008).

“The ability to distinguish between scale efficiency and pure technically efficiency, while also calculating total technical efficiency, is conferred by the use of a statistical technique known as data envelopment analysis (DEA). While DEA has a fairly complex mathematical definition and formulation, it can be explained in ay terms as a method of evaluating the technical efficiency of an organization, or set of organizations, based on a comparison of inputs and outputs (Cooper, Seiford, & Tone, 2006). According to Boussofiane, Martin, and Parker (1997), DEA is a robust and flexible method of measuring technical efficiency, in part because of DEA’s non-parametric nature (me...

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...vate banks operating in TRNC. The Central Bank of TRNC was asked to provide data for the past 10 years of banking history in TRNC. Some of these data are already provided on the Central Bank of TRNC’s (2014) public Web site. However, these data are only from the past few years. In addition, the figures are in Turkish Lira.

The data provided by the Near East Bank for the purposes of this study not only included 10 years of data (2004-2013) but also rendered all figures in 2013 USD. To facilitate calculation, these figures were then rendered into millions of USD. For reasons of privacy, the Near East Bank did not send identified data, as private banks in TRNC are not obligated to disclose their financial data to any party other than the Central Bank of TRNC itself.
To get information, Near East bank were asked to provide information according to following categories:

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