Evaluation of bank branch growth potential using data envelopment analysis

• We model three perspectives of bank branch growth using five output-oriented DEA models.
• We examine the feasibility of measuring branch growth using primarily product data.
• Three models properly identified the best performers of yearly branch growth.
• Model results suggest different branch types have different efficient product mixes.

Banks occasionally employ frontier efficiency analyses to objectively identify best practices within their organizations. Amongst such methods, Data Envelopment Analysis (DEA) was found to be one of the leading approaches. DEA has been successfully applied in many bank branch performance evaluations using traditional intermediation, profitability and production approaches. However, there has been little focus on assessing the growth potential of individual branches.This research presents five models that examine three perspectives of branch growth. Each model was applied to the branch network of one of Canada׳s top five banks to gauge the growth potential of individual branches and to provide tailored improvement recommendations. Using various analysis methodologies, the results of each model were examined and their functionality assessed.