Assessing the efficiency of pure-play internet banks in South Korea, Japan and China with data envelopment analysis

Hüseyin Öcal, Erdem Bağcı and Anton Abdulbasah Kamil

Journal of Investment Strategies

Abstract: This study aims to provide empirical insight into the efficiency of major pure-play internet banks in South Korea, Japan and China (that is, KakaoBank, K Bank, Sony Bank, Jibun Bank andWeBank).We employed the data envelopment analysis model and adopted a profit-oriented approach to measuring the efficiency of the banks between 2017 and 2020. In addition, we ran fixed cross-section regression to measure the relationship between net profit and the input and output variables. We found that in 2017 Sony Bank was run efficiently, but KakaoBank, K Bank and Jibun Bank were run inefficiently. In 2018 WeBank and Sony Bank were efficient, and the efficiency scores of KakaoBank and Jibun Bank were close to 1, meaning they ran fairly efficiently; however, K Bank was run inefficiently. In 2019 KakaoBank, WeBank and Sony Bank were run efficiently, and Jibun Bank’s efficiency score was close to 1, meaning it was run fairly efficiently, but K Bank was run inefficiently. In 2020 KakaoBank and Sony Bank were run efficiently but K Bank was run inefficiently. In addition, Jibun Bank’s efficiency score decreased slightly compared with 2019. Fixed cross-section regression showed the strongest relationship between net profit and noninterest expense. However, the relationship between net profit and noninterest income is also strong. We recommend that banks prioritize managing noninterest expenses and income to achieve sustainable profits.

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