Managerial efficiency in Taiwan bank branches: A network DEA

Taiwan's banking industry remains highly fragmented and competitive after a series of financial liberalization and restructuring. With the enforcement of these fiscal policies, domestic banking institutions face a more dynamic, increasingly intense and highly competitive environment even as the banking industry's overall efficiency has gradually been enhanced. This structural change has further forced individual banking institutions, especially state-owned banks, to inspect the performance of their branches and identify improvement directions so as to gain further competitive advantages. To conduct a valid, fair and reliable evaluation on Taiwan's bank branches, we integrate a two-stage series performance model and fuzzy multiobjective model. A new scheme that considers the complementation of production and intermediation activities within a branch and overcomes the shortage of the traditional network DEA methodology about DMUs cannot be assessed on a common base. The results indicate that the overall performances of mixed ownership bank branches are superior to those of state-owned bank branches, representing that the advantages of banking privatization have some remedial effects for improving the managerial inefficiency of state-owned banks. In addition, the sensitivity analysis and decision-making matrix herein help bank management to identify branches' efficiency, weakness, and directions for improvement.

► We propose a network performance framework to measure bank branch performance. ► We propose a network DEA model to assess all bank branches on a common base. ► A private bank may have remedial effects for improving the branch performance. ► Taiwan bank branches have their major profits from the internal fund transfers.