Benchmarking the Bank Branch Efficiency Through a New Dynamic Network DEA Model

Evaluating the effectiveness and productivity of financial institutions has been a focal point of research for scholars, professionals, and government regulators. Considering the limited number of existing literature and the availability of segregated data from the Taiwanese banking industry, this paper enhances and uncovers how the efficiency of bank branches varies based on several characteristics, including region and location of the branch. This study proposes a new model by incorporating a carry-over input and segregating the branch production process into operational and investment divisions. Using a dataset of 121 Taiwanese branches, the findings were as follows: First, the overall efficiencies of bank branches are not on par regardless of investment or operational efficiencies. In other words, the result reveals that banking branches in Taiwan are not only far away from reaching unity in efficiency but that there are also rooms for further improvement for both types of efficiency, particularly investment efficiency. Second, the operational efficiencies of branches do not differ statistically between regions, although investment efficiencies do. Third, clustering the efficiency of branches based on characteristics provided evidence that branches located in industrial areas have a higher level of operational efficiency (and second highest investment efficiency) compared to other locations. Overall, our results emphasize that operational efficiency exhibits statistical variations across diverse locations, while there is no corresponding variability in investment efficiency within the Taiwanese banking industry. The findings contribute to a foundational understanding for researchers, practitioners, and stakeholders, paving the way for further exploration and practical applications in the dynamic landscape of financial institutions.