Estimating Technical and Scale Efficiency of Malaysian Commercial Banks: A Non-Parametric Approach

Estimates of technical and scale efficiency of commercial banks in Malaysia during the period 2000-2006 are obtained by using the non-parametric approach-Data Envelopment Analysis (DEA). The results suggest that the degree of scale efficiency was found to be lower than the degree of overall or technical efficiency which indicated that the portion of overall inefficiency is due to producing at an inefficient scale rather than producing below the production frontier. In addition, the results suggest that domestic banks were more efficient compared to foreign banks. The source of domestic banks inefficiency has been pure technical inefficiency implying that domestic banks have been producing below the production frontier. In contrast, foreign banks inefficiency was due to scale inefficiency