The Synthetic Efficiency Measures of the Chinese Commercial Bank System with Bad Loans and Reserve Using Two-Stage DEA Model

Abstract

Recently, the liquidity risk that exit in the b anks has constantly exposed. There was a panic when people heard the massage of money shortage and default. The bank management need to strengthen the safely and liquidity of bank as the same time to pursuit of profit maximization. According to above discover, in this article, efforts are made to analyze the synthetic efficiency of commercial banks combining the safety, liquidity, profitability of commercial banks. In this study, we utilize extend the two-stage centralized and non-cooperative DEA approach to disaggregate, evaluate and test the 16 major Chinese commercial banks in 2012 with the consideration of undesirable/bad output and reserve. The main findings of this study are as follows: i) The non-cooperative model may overestimate the efficiency of ignore the relationship between the traditional stage and financial innovation stage or disagree with the real bank operation. ii) Bad loans has significant negative effect on efficiency indicating that the large and more bad loans lead bank to lower efficiency. iii) The state-owned bank achieved relative lower efficient, it implies that the state-owned commercial banks are necessary to gradually complete their joint-equity reform.
Key words: Two-stage DEA model; Game theory; Tobit model; Reserve; Bad loans; Synthetic efficiency