Cost Efficiency of Thrift Banks in the Philippines: A Data Envelopment Approach

Abstract

The aim of this study is to determine the cost efficiency of thrift banks in the Philippines. Data were taken from the financial statements of thrift banks in the Central Bank of the Philippines from 2013 to 2016. In deriving cost efficiency, the inputs used were total liability, net of real and other property acquired and net of bank premises, furniture and fixture, and equipment, while outputs were represented in terms of total loan portfolio (TLP) and other financial assets. With the input and output variables employed, evident in the outcomes of data envelopment analysis that variable return-to-scale (VRS) assumption resulted to greater number of cost efficient banks as compared under constant return-to-scale (CRS) assumption. Although findings had revealed that most thrift banks cost efficiency percentages lie below 50 percent, there were still identified thrift banks that has been cost efficient in terms of inputs and outputs used in the study. Hence, majority of the thrift banks in the Philippines were not cost-efficient with respect to the inputs and outputs. Additionally, the number of thrift banks found to be cost-efficient are significantly low in both CRS and VRS assumptions, although VRS reflected greater number than CRS assumption. Implications were discussed in this paper based on the findings gleaned from the econometric analysis.