Efficiency and its determinants in the Algerian banks: network data envelopment analysis and partial least squares regression

Abstract

Purpose

The purpose of this paper is to evaluate the efficiency of Algerian banks and examine the effects of explanatory factors on their performance.

Design/methodology/approach

In this paper, a methodology of two-stage network data envelopment analysis (DEA) is used to explore the efficiency of a sample of 13 Algerian banks during the 2013–2017 period. In the first stage, the network DEA is used to assess the overall and stages efficiencies. In the second stage, the partial least squares (PLS) regression is conducted to determine the potential effects of explanatory factors on stages efficiency.

Findings

The main empirical results indicate that Algerian banks need an efficiency improvement in both stages. The overall efficiency of the Algerian banking system improves over the study period. The deposit producing efficiency is positively affected by bank size and bank age. The revenue earning efficiency is negatively associated with bank size and bank age. The domestic banks are more efficient than foreign banks in the deposit producing stage and the foreign banks are more efficient than domestic banks in the revenue earning stage.

Practical implications

The results might be used as guidelines for both managers and policymakers in order to improve banks and banking system performance.

Originality/value

To the best of our knowledge, this study is the first that uses the DEA in investigating the efficiency of Algerian banks by dividing the overall efficiency into deposit producing and revenue earning efficiencies. Unlike most studies that have usually used OLS regression, Tobit regression and bootstrapped truncated regression, this study is the first in the bank efficiency literature that uses PLS regression to investigate the potential effect of explanatory variables on deposit producing and revenue earning efficiencies.

Citation

Achi, A. (2023), "Efficiency and its determinants in the Algerian banks: network data envelopment analysis and partial least squares regression", International Journal of Productivity and Performance Management, Vol. 72 No. 5, pp. 1479-1508. https://doi.org/10.1108/IJPPM-07-2021-0407