EFFICIENCY OF THE LATVIAN COMMERCIAL BANKING SYSTEM: A DEA MODEL EVALUATION

Abstract

The purpose of the present paper is to assess the efficiency of the Latvian commercial banks in the period prior to the crisis, the period of the crisis and the period of economic recovery. In order to achieve the results of the present research, the qualitative overview of the scientific literature on Data Envelopment Analysis (DEA) has been performed. To gain the required data, the authors of the present paper have analyzed the work of the Latvian commercial banks and the branches/ agencies of the foreign banks, as well as the work of the credit institutions registered in the member states of the European Economic Area (EEA) and their affiliations operating in Latvia in the reporting period of 2006 – 2012. In order to assess the efficiency of the Latvian commercial banking system, the authors have applied the DEA methodology. The input and output indicators have been identified taking into consideration the studies conducted by other scientists, applying such data as credits, deposits, and other assets. Assessing the efficiency of the Latvian commercial banks, the authors have come to the conclusion that the performance of the major banks is frequently more efficient than the work of the smaller ones. The data obtained has also shown that small banks constantly require innovative solutions to improve their efficiency