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Change in the composition of bank income and its effect on the changes in the efficiency of bank regions

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Van der Westhuizen, Gerhardus

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Clute Institute [for academic research]

Abstract

Over the past five years, banks experienced a change in the composition of bank income earning more in service fees compared to interest income. The effect of this change on the efficiency of bank regions is investigated. Data Envelopment Analysis (DEA) and the TFP (Total Factor Productivity) index decomposition methodology were used to estimate efficiency and to decompose productivity change into its different components. Two models were specified – one for the ‘traditional function’ of a bank and one for the ‘non-traditional function’ of a bank. It appears that some bank regions experienced improvement in efficiency under the “non-traditional” model, meaning that the change in the composition of bank income can result in improved efficiency.

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Van Der Westhuizen, G. 2012. Change in the composition of bank income and its effect on the changes in the efficiency of bank regions. International business & economics research Journal, 11(6):631-646. [http://journals.cluteonline.com/index.php/IBER]

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