Interest rate liberalization and bank efficiency: A DEA analysis of Chinese commercial banks

Huaqing Wu (), Jingyu Yang (), Wensheng Wu () and Ya Chen ()
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Huaqing Wu: Hefei University of Technology
Jingyu Yang: Hefei University of Technology
Wensheng Wu: Hefei University of Technology

Central European Journal of Operations Research, 2023, vol. 31, issue 2, No 5, 467-498

Abstract: Abstract The interest rate liberalization (IRL) policy reform in China intends to improve performance of financial institutions. However, the actual effect of the reform is still unclear since China accelerated the reform of interest rate liberalization in 2012. Based on a two-stage network data envelopment analysis (DEA) approach, we evaluate the overall efficiency, fund-raising efficiency and fund-using efficiency of Chinese commercial banks using a data set of 27 commercial banks from 2006 to 2020. Then we further examine the impact of interest rate liberalization on bank efficiency by using Tobit regression. The results show that interest rate liberalization is conductive to the promotion of bank efficiency. However, the positive effect does not appear in the whole production process. It is only reflected in the fund-raising stage. Interest rate liberalization seems to hinder the improvement of fund-using efficiency, which is worth the attention of Chinese commercial banks. Finally, we conclude with several policy implications based on the findings in this paper.

Keywords: Data envelopment analysis; Decision support; Interest rate liberalization; Bank efficiency; Two-stage network; Tobit (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10100-022-00817-1

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