65172

Victor Eduardo de Mello Valério
Edson de Oliveira Pamplona
Marcelo Nunes Fonseca
Paulo Rotela Junior
Luiz Célio Souza Rocha
Rogério Santana Peruchi

Revista Brasileira de Finanças

This article creates a conceptual model, called a network system, to represent the Brazilian banking production system, based on its internal operational processes. The first, called the intermediation process, measures a bank’s efficiency in extending loans from its available resources. The second, called the revenue process, measures a bank’s efficiency in earning profit, mainly from loans granted. We adopt a two-stage DEA model. In the first stage, a relational network DEA model measures both the network system efficiency scores and internal processes. This technique, associated with the Malmquist Index, assesses performance changes over time. In the second stage, these efficiency scores are considered dependent variables, such that Tobit models can determine how the Brazilian credit market’s characteristics can explain the network system and internal processes’ efficiency. Results show not only a growing trend toward greater efficiency in the revenue process, but also an increase in productivity accompanied by a decline in the intermediation process technology. Given the high banking spreads in Brazil, these results indicate deterioration in the quality of the credit portfolio and the prospect of future insolvency. We discuss implications of this scenario for domestic banks and collateral policy.

JEL Code: G2, G21, Two-stage DEA; Relational model; Malmquist index; Tobit; Brazilian banks

VALÉRIO, V. E. M.; PAMPLONA, E. O.; FONSECA, M. N.; ROTELA JUNIOR, P.; ROCHA, L. C. S.; PERUCHI, R. S. Efficiency and productivity of brazilian banks: A new approach based on two-stage network DEA. Revista Brasileira de Finanças, v. 19, n. 4, p. 130-159, 2021.

Valério, V. E. M., Pamplona, E. O., Fonseca, M. N., Rotela Junior, P., Rocha, L. C. S., & Peruchi, R. S. (2021). Efficiency and productivity of brazilian banks: A new approach based on two-stage network DEA. Revista Brasileira de Finanças, 19(4), 130-159.

https://doi.org/10.12660/rbfin.v19n4.2021.82002

https://www.spell.org.br/documentos/ver/65172/efficiency-and-productivity-of-brazilian-banks--a-new-approach-based-on-two-stage-network-dea/i/pt-br

Artigo

Inglês

Almeida, D. B. d. C. and Jayme Jr., F. G. (2008). Bank consolidation and credit concentration in Brazil (1995-2004), Cepal Review 95: 155–172. URL: https://www.cepal.org/en/publications/11315-bank-consolidation-and-credit-concentration-brazil-1995-2004

Avkiran, N. K. (2009). Opening the black box of efficiency analysis: An illustration with UAE banks, Omega 37(4): 930–941. URL: https://doi.org/10.1016/j.omega.2008.08.001

Avkiran, N. K. (2011). Association of DEA super-efficiency estimates with financial ratios: Investigating the case for Chinese banks, Omega 39(3): 323–334. URL: https://doi.org/10.1016/j.omega.2010.08.001

Banker, R. D. and Natarajan, R. (2008). Evaluating contextual variables affecting productivity using data envelopment analysis, Operations Research 56(1): 48–58. URL: https://doi.org/10.1287/opre.1070.0460

Banker, R. D., Cooper, W. W., Seiford, L. M. and Zhu, J. (2011). Returns to scale in DEA, in W. W. Cooper, L. M. Seiford and J. Zhu (eds), Handbook on Data Envelopment Analysis, Springer US, Boston, MA, pp. 41–70. URL: https://doi.org/10.1007/978-1-4419-6151-8_2

Barros, C. P. and Wanke, P. (2014). Banking efficiency in Brazil, Journal of International Financial Markets, Institutions and Money 28: 54–65. URL: https://doi.org/10.1016/j.intfin.2013.10.004

Barros, C. P., Tsionas, M. G., Wanke, P. and Azad, M. A. K. (2018). Efficiency in banking of developing countries with the same cultural back-ground, Journal of Economic Studies 45(3): 638–659. URL: https://doi.org/10.1108/JES-04-2017-0107

Beck, T., Crivelli, J. M. and Summerhill, W. (2005). State bank transformation in Brazil – choices and consequences, Journal of Banking & Finance 29(8): 2223–2257. URL: https://doi.org/10.1016/j.jbankfin.2005.03.014

Belaisch, A. (2003). Do Brazilian banks compete?, IMF Working Papers 2003(113). URL: https://doi.org/10.5089/9781451853728.001

Berger, A. N. and Humphrey, D. B. (1997). Efficiency of financial institutions: International survey and directions for future research, European Journal of Operational Research 98(2): 175–212. URL: https://doi.org/10.1016/S0377-2217(96)00342-6

Berg, S. A., Førsund, F. R. and Jansen, E. S. (1992). Malmquist indices of productivity growth during the deregulation of Norwegian banking, 198089, The Scandinavian Journal of Economics 94: S211–S228. URL: https://doi.org/10.2307/3440261

Berg, S. A., Førsund, F. R., Hjalmarsson, L. and Suominen, M. (1993). Banking efficiency in the nordic countries, Journal of Banking & Finance 17(2): 371–388. Special issue on the efficiency of financial institutions. URL: https://doi.org/10.1016/0378-4266(93)90038-F

Bohácek, R. (2007). Financial intermediation with credit constrained agents, ˇ Journal of Macroeconomics 29(4): 741–759. URL: https://doi.org/10.1016/j.jmacro.2006.03.003

Caves, D. W., Christensen, L. R. and Diewert, W. E. (1982). The economic theory of index numbers and the measurement of input, output, and productivity, Econometrica 50(6): 1393–1414. URL: https://doi.org/10.2307/1913388

Çelen, A. (2013). Efficiency and productivity (TFP) of the Turkish electricity distribution companies: An application of two-stage (DEA&Tobit) analysis, Energy Policy 63: 300–310. URL: https://doi.org/10.1016/j.enpol.2013.09.034

Charnes, A., Cooper, W. and Rhodes, E. (1978). Measuring the efficiency of decision making units, European Journal of Operational Research 2(6): 429–444. URL: https://doi.org/10.1016/0377-2217(78)90138-8

Chen, Y., Cook, W. D., Li, N. and Zhu, J. (2009). Additive efficiency decomposition in two-stage DEA, European Journal of Operational Research 196(3): 1170–1176. URL: https://doi.org/10.1016/j.ejor.2008.05.011

da Silva Fernandes, F., Stasinakis, C. and Bardarova, V. (2018). Two-stage DEA-truncated regression: Application in banking efficiency and financial development, Expert Systems with Applications 96: 284–301. URL: https://doi.org/10.1016/j.eswa.2017.12.010

Ebrahimnejad, A., Tavana, M., Lotfi, F. H., Shahverdi, R. and Yousefpour, M. (2014). A three-stage Data Envelopment Analysis model with application to banking industry, Measurement 49: 308–319. URL: https://doi.org/10.1016/j.measurement.2013.11.043

Eggoh, J. C. and Villieu, P. (2014). A simple endogenous growth model of financial intermediation with multiplicity and indeterminacy, Economic Modelling 38: 357–366. URL: https://doi.org/10.1016/j.econmod.2014.01.017

Färe, R. (1991). Measuring Farrell efficiency for a firm with intermediate inputs, Academia Economic Papers 19(2): 329–340.

Färe, R. and Grosskopf, S. (1996). Productivity and intermediate products: A frontier approach, Economics Letters 50(1): 65–70. URL: https://doi.org/10.1016/0165-1765(95)00729-6

Färe, R. and Whittaker, G. (1995). An intermediate input model of dairy production using complex survey data, Journal of Agricultural Economics 46(2): 201–213. URL: https://doi.org/10.1111/j.1477-9552.1995.tb00766.x

Färe, R., Grosskopf, S., Norris, M. and Zhang, Z. (1994). Productivity growth, technical progress, and efficiency change in industrialized countries, American Economic Review 84(1): 66–83. URL: http://www.jstor.org/stable/2117971

Faria Júnior, J. A. d., Paula, L. F. d. and Marinho, A. (2006). Fusões e aquisições bancárias no Brasil: Uma avaliação da eficiência técnica e de escala, Texto para discussão 1233, IPEA. URL: http://repositorio.ipea.gov.br/handle/11058/1733

Farrell, M. J. (1957). The measurement of productive efficiency, Journal of the Royal Statistical Society: Series A (General) 120(3): 253–281.

Franco, G. H. B. (2000). The Real plan and the exchange rate, Essays In International Finance 217: 1–96. URL: https://ies.princeton.edu/pdf/E217.pdf

Freitas, G. A. d., Silva, E. M., Oliveira, M. C., Cabral, A. C. d. A. and Santos, S. M. d. (2018). corporate governance and performance of banks listed in B3 in an economic crisis environment, Journal of Accounting, Management and Governance 21(1): 100–119. URL: https://www.revistacgg.org/contabil/article/view/1410

Fukuyama, H. and Mirdehghan, S. (2012). Identifying the efficiency status in network DEA, European Journal of Operational Research 220(1): 85–92. URL: https://doi.org/10.1016/j.ejor.2012.01.024

Greene, W. H. (2018). Econometric Analysis, 8th edn, Pearson Education, New York.

Guo, C., Wei, F., Ding, T., Zhang, L. and Liang, L. (2017). Multistage network DEA: Decomposition and aggregation weights of component performance, Computers & Industrial Engineering 113: 64–74. URL: https://doi.org/10.1016/j.cie.2017.08.019

Hoff, A. (2007). Second stage DEA: Comparison of approaches for modelling the DEA score, European Journal of Operational Research 181(1): 425– 435. URL: https://doi.org/10.1016/j.ejor.2006.05.019

Johnson, A. L. and Kuosmanen, T. (2012). One-stage and two-stage DEA estimation of the effects of contextual variables, European Journal of Operational Research 220(2): 559–570. URL: https://doi.org/10.1016/j.ejor.2012.01.023

Kao, C. (2009a). Efficiency decomposition in network data envelopment analysis: A relational model, European Journal of Operational Research 192(3): 949–962. URL: https://doi.org/10.1016/j.ejor.2007.10.008

Kao, C. (2009b). Efficiency measurement for parallel production systems, European Journal of Operational Research 196(3): 1107–1112. URL: https://doi.org/10.1016/j.ejor.2008.04.020

Kao, C. (2014). Efficiency decomposition for general multi-stage systems in data envelopment analysis, European Journal of Operational Research 232(1): 117–124. URL: https://doi.org/10.1016/j.ejor.2013.07.012

Kao, C. (2017). Measurement and decomposition of the Malmquist productivity index for parallel production systems, Omega 67: 54–59. URL: https://doi.org/10.1016/j.omega.2016.04.001

Kao, C. and Hwang, S.-N. (2008). Efficiency decomposition in two-stage data envelopment analysis: An application to non-life insurance companies in Taiwan, European Journal of Operational Research 185(1): 418–429. URL: https://doi.org/10.1016/j.ejor.2006.11.041

Kao, C. and Liu, S.-T. (2014). Multi-period efficiency measurement in data envelopment analysis: The case of Taiwanese commercial banks, Omega 47: 90–98. URL: https://doi.org/10.1016/j.omega.2013.09.001

Lampe, H. W. and Hilgers, D. (2015). Trajectories of efficiency measurement: A bibliometric analysis of DEA and SFA, European Journal of Operational Research 240(1): 1–21. URL: https://doi.org/10.1016/j.ejor.2014.04.041

Levine, R., Loayza, N. and Beck, T. (2000). Financial intermediation and growth: Causality and causes, Journal of Monetary Economics 46(1): 31– 77. URL: https://doi.org/10.1016/S0304-3932(00)00017-9

liang Yang, G., Fukuyama, H. and yao Song, Y. (2018). Measuring the inefficiency of Chinese research universities based on a two-stage network DEA model, Journal of Informetrics 12(1): 10–30. URL: https://doi.org/10.1016/j.joi.2017.11.002

Li, H., Chen, C., Cook, W. D., Zhang, J. and Zhu, J. (2018). Two-stage network DEA: Who is the leader?, Omega 74: 15–19. URL: https://doi.org/10.1016/j.omega.2016.12.009

Liu, J. S., Lu, L. Y., Lu, W.-M. and Lin, B. J. (2013a). Data envelopment analysis 1978-2010: A citation-based literature survey, Omega 41(1): 3– 15. Data Envelopment Analysis: The Research Frontier This Special Issue is dedicated to the memory of William W. Cooper 1914-2012. URL: https://doi.org/10.1016/j.omega.2010.12.006

Liu, J. S., Lu, L. Y., Lu, W.-M. and Lin, B. J. (2013b). A survey of DEA applications, Omega 41(5): 893–902. URL: https://doi.org/10.1016/j.omega.2012.11.004

Luo, X. (2003). Evaluating the profitability and marketability efficiency of large banks: An application of data envelopment analysis, Journal of Business Research 56(8): 627–635. URL: https://doi.org/10.1016/S0148-2963(01)00293-4

Malmquist, S. (1953). Index numbers and indifference surfaces, Trabajos de Estadistica 4(2): 209–242. URL: https://doi.org/10.1007/BF03006863

Mariz, F. B., Almeida, M. R. and Aloise, D. (2018). A review of dynamic data envelopment analysis: State of the art and applications, International Transactions in Operational Research 25(2): 469–505. URL: https://doi.org/10.1111/itor.12468

McCaig, B. and Stengos, T. (2005). Financial intermediation and growth: Some robustness results, Economics Letters 88(3): 306–312. URL: https://doi.org/10.1016/j.econlet.2004.12.031

Nakane, M. I. and Weintraub, D. B. (2005). Bank privatization and productivity: Evidence for Brazil, Journal of Banking & Finance 29(8): 2259–2289. URL: https://doi.org/10.1016/j.jbankfin.2005.03.015

Ness, W. L. (2000). Reducing government bank presence in the Brazilian financial system why and how, Quarterly Review of Economics and Finance 40(1): 71–84. URL: https://doi.org/10.1016/S1062-9769(99)00045-9

Olivero, M. P., Li, Y. and Jeon, B. N. (2011). Consolidation in banking and the lending channel of monetary transmission: Evidence from Asia and Latin America, Journal of International Money and Finance 30(6): 1034– 1054. URL: https://doi.org/10.1016/j.jimonfin.2011.06.006

Paradi, J. C. and Zhu, H. (2013). A survey on bank branch efficiency and performance research with data envelopment analysis, Omega 41(1): 61– 79. Data Envelopment Analysis: The Research Frontier This Special Issue is dedicated to the memory of William W. Cooper 1914-2012. URL: https://doi.org/10.1016/j.omega.2011.08.010

Pastor, J. T., Asmild, M. and Lovell, C. K. (2011). The biennial Malmquist productivity change index, Socio-Economic Planning Sciences 45(1): 10– 15. URL: https://doi.org/10.1016/j.seps.2010.09.001

Portela, M. C. and Thanassoulis, E. (2010). Malmquist-type indices in the presence of negative data: An application to bank branches, Journal of Banking & Finance 34(7): 1472–1483. Performance Measurement in the Financial Services Sector. URL: https://doi.org/10.1016/j.jbankfin.2010.01.004

Rho, S. and An, J. (2007). Evaluating the efficiency of a two-stage production process using data envelopment analysis, International Transactions in Operational Research 14(5): 395–410. URL: https://doi.org/10.1111/j.1475-3995.2007.00597.x

Seiford, L. M. and Zhu, J. (1999). Profitability and marketability of the top 55 U.S. commercial banks, Management Science 45(9): 1270–1288. URL: https://doi.org/10.1287/mnsc.45.9.1270

Shyu, J., Lieu, P.-T. and Chang, W. (2015). How the environment determines banking efficiency: A comparison of banking firms in Taiwan, Hong Kong, and mainland China, International Transactions in Operational Research 22(4): 757–770. URL: https://doi.org/10.1111/itor.12097

Simar, L. and Wilson, P. W. (2007). Estimation and inference in two-stage, semi-parametric models of production processes, Journal of Econometrics 136(1): 31–64. URL: https://doi.org/10.1016/j.jeconom.2005.07.009

Siriopoulos, C. and Tziogkidis, P. (2010). How do Greek banking institutions react after significant events?—A DEA approach, Omega 38(5): 294–308. Empirical Research in the EU Banking Sector and the Financial Crisis. URL: https://doi.org/10.1016/j.omega.2009.06.001

Staub, R. B., da Silva e Souza, G. and Tabak, B. M. (2010). Evolution of bank efficiency in Brazil: A DEA approach, European Journal of Operational Research 202(1): 204–213. URL: https://doi.org/10.1016/j.ejor.2009.04.025

Sturm, J.-E. and Williams, B. (2010). What determines differences in foreign bank efficiency? Australian evidence, Journal of International Financial Markets, Institutions and Money 20(3): 284–309. URL: https://doi.org/10.1016/j.intfin.2010.03.008

Tecles, P. L. and Tabak, B. M. (2010). Determinants of bank efficiency: The case of Brazil, European Journal of Operational Research 207(3): 1587– 1598. URL: https://doi.org/10.1016/j.ejor.2010.06.007

Tone, K. and Tsutsui, M. (2009). Network DEA: A slacks-based measure approach, European Journal of Operational Research 197(1): 243–252. URL: https://doi.org/10.1016/j.ejor.2008.05.027

Turner, H., Windle, R. and Dresner, M. (2004). North American containerport productivity: 1984-1997, Transportation Research Part E: Logistics and Transportation Review 40(4): 339–356. Shipping Finance and Port Issues. URL: https://doi.org/10.1016/j.tre.2003.06.001

Wanke, P. and Barros, C. (2014). Two-stage DEA: An application to major Brazilian banks, Expert Systems with Applications 41(5): 2337–2344. URL: https://doi.org/10.1016/j.eswa.2013.09.031

Wanke, P., Azad, A. K. and Emrouznejad, A. (2018). Efficiency in BRICS banking under data vagueness: A two-stage fuzzy approach, Global Finance Journal 35: 58–71. URL: https://doi.org/10.1016/j.gfj.2017.05.001

Wanke, P., Barros, C. P. and Faria, J. R. (2015). Financial distress drivers in Brazilian banks: A dynamic slacks approach, European Journal of Operational Research 240(1): 258–268. URL: https://doi.org/10.1016/j.ejor.2014.06.044

Wanke, P., Maredza, A. and Gupta, R. (2017). Merger and acquisitions in South African banking: A network DEA model, Research in International Business and Finance 41: 362–376. URL: https://doi.org/10.1016/j.ribaf.2017.04.055

Wijesiri, M. and Meoli, M. (2015). Productivity change of microfinance institutions in Kenya: A bootstrap Malmquist approach, Journal of Retailing and Consumer Services 25: 115–121. URL: https://doi.org/10.1016/j.jretconser.2015.04.004

Yildirim, H. S. and Philippatos, G. C. (2007). Restructuring, consolidation and competition in Latin American banking markets, Journal of Banking & Finance 31(3): 629–639. URL: https://doi.org/10.1016/j.jbankfin.2006.06.008

Yuengert, A. M. (1993). The measurement of efficiency in life insurance: Estimates of a mixed normal-gamma error model, Journal of Banking & Finance 17(2): 483–496. Special Issue on The Efficiency of Financial Institutions. URL: https://doi.org/10.1016/0378-4266(93)90047-H

Yu, M.-M. and Lin, E. T. (2008). Efficiency and effectiveness in railway performance using a multi-activity network DEA model, Omega 36(6): 1005– 1017. A Special Issue Dedicated to the 2008 Beijing Olympic Games. URL: https://doi.org/10.1016/j.omega.2007.06.003