Assessment of risk management and efficiency of bank branches using network data envelopment analysis

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Abstract

The purpose of this study is to investigate the efficiency of bank branches by using the data envelopment analysis models (DEA) in three stages, the effect of risk on the efficiency. This study used BCC and CCR indicators. The data used is related to 30 bank branches in 2020. The most crucial goal was simultaneously testing risk and efficiency in three stages. Results showed that in the case of CCR with risk-taking, 17 practical branches with a performance score of 100, and the rest were inefficient. The average risk-taking efficiency is also 0.9. The risk-based BCC model has also been used, with 19 branches with a performance score of 100 and the remainder inefficient. The efficiency of the branches using the CCR model includes 10 efficient branches, and the remaining branches are unproductive. By implementing the BCC model, efficient branches have 13 effective branches, and the remaining inefficiencies that have been effective after applying the risk factor in the second model, are Roodsar Branches and Imam and Chaboksar Blvd. Comparative analysis can help managers recognise where improvement should be prioritised, and inefficient branches become efficient in an operational plan.

Keywords: Bank Branch Performance, Data Envelopment Analysis, DEA, Risk

Authors’ individual contribution: Conceptualization — J.A.; Methodology — J.A.; Validation — J.A., R.H., and M.L.; Investigation — J.A., R.H., and M.L.; Resources — J.A.; Data Curation — J.A.; Writing — Original Draft — J.A.; Writing — Review & Editing — J.A., R.H., and M.L.; Visualisation — J.A.; Supervision — J.A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: C02, E4, L2

Received: 29.06.2022
Accepted: 14.11.2023
Published online: 16.11.2023

How to cite this paper: Azizi, J., Huseynov, R., & Li, M. (2023). Assessment of risk management and efficiency of bank branches using network data envelopment analysis [Special issue]. Journal of Governance & Regulation, 12(4), 214–226. https://doi.org/10.22495/jgrv12i4siart1