Efficiency Analysis of Banking Sector in Presence of Undesirable Factors Using Data Envelopment Analysis

Banks play a crucial role in the growth and development of an economy. A profitable banking system contributes to economic stability and efficiency, helping to mitigate the impacts of sudden macroeconomic shocks. In order to improve efficiency and profitability, banks need to identify the factors that influence their performance. Accrued liabilities are one such factor that can hinder the profitability of banks. There are various methods available to assess the profitability of banks, each with its own advantages and disadvantages. Among these methods, data envelopment analysis (DEA) is widely recommended as a common approach to evaluate different efficiencies, including cost efficiency, revenue efficiency, technical efficiency, and overall profitability. By having access to prices and weights of inputs and outputs, financial managers can gain valuable insights for evaluating efficiencies and making informed decisions in the process of strategy development. The main objective of this study is to analyze the profitability of banks by considering accrued liabilities resulting from undesirable factors. To achieve this, relevant data was collected from 33 branches of a commercial bank in Gilan province, Iran, using managerial and weak disposability approaches. The results indicate that only three branches were ranked as efficient across three dimensions: technical efficiency, cost efficiency, revenue efficiency, and profitability. Furthermore, the study suggests that the lack of these efficiencies was not correlated with the profitability of the branches.