Master of Accountancy - Research
School of Accounting and Finance
Forughi, Shima Hassan Zadeh, An analysis on the efficiency and productivity of the Australian banking sector with a specific emphasis on the global financial crisis (2007-2009), Master of Accountancy - Research thesis, School of Accounting and Finance, University of Wollongong, 2012. https://ro.uow.edu.au/theses/3522
The banking industry plays a crucial role in the financial system and economic development of any country. Thus, the evaluation of its efficiency is of great importance. The present thesis analyses the impact of different phases of the recent banking crisis on Australian banks with a view to identifying problem areas in the banking sector and to provide directions for policy improvements.
A multiple-stage approach based on Data Envelopment Analysis (DEA) is utilized in this study to investigate the level of efficiency and productivity of the Australian banks over a 7 year period. This analysis consists of the following five phrases: First, the level of efficiency of banks is measured and compared using three different approaches— intermediation approach, value-added approach, and production approach— with a view to distinguishing how efficiency scores may vary with changes in the corresponding different input-output mixes. Both the constant return to scale (CRS) and variable return to scale (VRS) assumptions have been put into the test. Second, productivity changes of the sample banks are measured analyzing the Malmquist indices. Third, examination of the relationship between the level of efficiency and the institutional size of each bank using a univariate cross-tabulation approach is conducted. Fourth, examination of the impact of the global financial crisis 2007-2009 on the performance of the Australian banks is applied. Fifth, analysis of the effectiveness of recent mergers and acquisitions in Australian banking system in improving the efficiency and performance of the Australian banks is presented.
The findings of the study revealed that during the period investigated in this study, the sample banks exhibited a high pure technical efficiency under all three approaches and high scale efficiency under production and value-added approaches, but lower scale efficiency under the intermediation approach. The banks inefficiency is mainly attributable to the scale of their operations and under utilization of resources. During the financial crisis, the sample banks produced a high level of technical efficiency under production and value-added approach but the low level of efficiency under intermediation approach may have been caused by the serious decline in amount of investments and loans.
The analysis on Malmquist indices also showed that during the financial crisis 2007- 2009, the sample banks experienced productivity growth under the value-added approach and productivity regress under the intermediation approach.
Evaluation of the relationship between the size of banks and their performance revealed that the Big Four banks—ANZ, Commonwealth, NAB and West Pac— operated more efficiently than the other banks under all three approaches during all years of investigation except for 2009 and 2010.
This study makes a significant contribution to the academic literature by providing the first empirical evidence of the impact of the recent global financial crisis (2007-2009) on Australian Banks using the DEA methodology and presenting an analysis of the effectiveness of recent mergers and acquisitions of Australian banks.