Measuring Bank Performance in the Current Evolving Financial Marketplace

Abstract

This paper presents a concept of ‘relative efficiency’ as an alternative measure to assess bank performance. Traditional financial statement analysis cannot explain all variations in stock prices. Particularly, in recent years, banks have been forced not only to generate profit, but also to perform efficiently to survive in the industry. Normally, bank financial statements may not clarify non-financial activities such as hidden assets or competitiveness of the bank. This paper, illustrates how parametric and non-parametric frontier approaches can measure economic value added in terms of a ‘bank’s managerial efficiency’. The bank efficiency estimate provides incremental information not contained directly in bank financial statements for to the bank’s stakeholders.