The Relative Efficiency of Jordanian Banks and its Determinants Using Data Envelopment Analysis

Mohd Mahmoud Ajlouni, Mohammad Waleed Hmedat and Waleed Hmedat

Journal of Applied Finance & Banking, 2011, vol. 1, issue 3, 3

Abstract: The purpose of this study is to measure the relative efficiency of banks in Jordan using DEA. Also, it investigated the determinants of such efficiency, in terms of bank size and capitalization. The duration of the measured performance of this sector is (2005-2008). The results indicate that average efficiency score of the sample banks is high and stable over time. Another important result is that the relative efficiency of larger banks significantly outperforms smaller and medium size banks, indicating that bank size is a determinant of efficiency. However, banks with higher capital adequacy ratio are less efficient. Thus, commercial banks in Jordan with higher capital adequacy ratio are risk-averse and managing safer and lower-earning portfolios.

Date: 2011
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