Measuring efficiency of banks in Saudi Arabia: A data envelopment analysis approach

Abstract

The current study investigates the efficiency of banks in Saudi Arabia in terms of technical change and change in total productivity. The study considers ten banks listed on Tadawul as a sample from 2016 to 2021. The Malmquist Data Envelopment Analysis (Malmquist DEA) model is employed to measure banks’ efficiency. Customer deposits and balances with other banks and financial institutions are inputs, while the operating profit and net income are outputs to measure efficiency. The results of efficiency report that most of the Saudi Arabian banks are considerably efficient, while some are marginally efficient. The technical change report results show that Saudi Arabia’s banks are enthusiastic about adopting new technologies that lead to their growth. Further, the results of the change in total productivity show great dynamism among the Saudi Arabian banks to become more productive, which ultimately leads to a more remarkable performance. The study results demonstrate the good performance of Saudi Arabian banks; however, very few banks are marginally efficient in terms of efficiency change. Therefore, the study supports the established hypothesis that there is a significant change in the technical efficiency and total productivity of Saudi Arabian banks. AcknowledgmentThe author(s) acknowledge that the Deanship of Scientific Research supports the current project at Prince Sattam Bin Abdulaziz University under research project number 2022/02/20810.

Keywords

• DEA
• efficiency of banks
• inputs and outputs
• Malmquist model
• technical efficiency
• total productivity