A Non-parametric approach to efficiency measurement in the Malaysian banking sector

This paper applies the non-parametric approach of Data Envelopment Analysis (DEA), to measure technical efficiency of Malaysian commercial banks. The DEA method has been applied on a panel of 20 commercial banks from 1989 to 1995. The results show that on the average the banks do not efficiently combine their inputs. The findings suggest that over the period of observation, average technical efficiency range from 68% to 80%. Most commercial banks do not operate at constant returns to scale and that technical inefficiency is attributed to scale inefficiency.