An empirical study on measuring operating efficiency and profitability of bank branches

This paper discusses the methodology of an empirical study that was employed to measure the operating efficiencies of a set of 20 bank branches of a major Turkish Commercial Bank offering relatively homogeneous products in a multi-market business environment. The methodology was based on the concepts and principles of Data Envelopment Analysis (DEA). The results of the study have indicated that this kind of approach is not only complementary to traditionally used financial ratios but also a useful bank management tool in reallocating resources between the branches in order to achieve higher efficiencies. It has been also observed that the service-efficient bank branches were also the most profitable ones, suggesting the existence of a relationship between service efficiency and profitability.