Measuring the performance of the banking sector in Iraq using data envelopment analysis
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Abstract
Banking sector is one of the most important sectors that witnessed emergence of many private banks in the competitive markets. Therefore, evaluating and improving the efficiency of the banking sector has newly attracted increasing interest. In Iraq, the lack of interest in measuring the efficiency of banking sector by exploiting available resources to produce high level of outputs can be deemed the main issue of banks. This paper aims to measure and analyse the efficiency of banking sector in Iraq using the output-oriented BCC model of data envelopment analysis under variable returns to scale (VRS) technology. The model focuses on the trend of increasing outputs while keeping inputs at their current levels in order to maximise banks’ outputs. To measure efficiency, this paper relies on a dataset of 18 Iraqi banks for the year 2025. The banks have been evaluated in terms of global technical efficiency, pure technical efficiency, scale efficiency, and returns to scale. The results show that, out of 18 evaluated banks, 11 banks achieved efficient status under VRS. The average efficiency score of the efficient and inefficient banks under VRS is 0.899, in which 0.101 of banks are inefficient. Moreover, benchmarks and targets of outputs for each inefficient banks have been identified to improve the production of outputs by identifying their optimum levels.
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