CHAPTER VI: RESULTS AND FINDING:
VI Chapter Six:
Results, Findings
In this chapter, fourth, fifth and sixth objectives o f study are analysed, interpreted, and discussed by using DEA method with the efficiency tools. Already, methodology o f analysis has been discussed in chapter three with detailed scope. Also variables that have been used in this chapter are discussed.
In this study, non-parametric Data Envelopment Analysis (DEA) has been used to examine various bank specific technical efficiencies. There are number o f advantages o f this method are given by economists and banking analysts. Firstly, the DEA does not require imposition of restrictions of specific functional forms on the production relationship between inputs and outputs. Secondly, the DEA models simultaneously accommodate multiple inputs and outputs, thereby serving as a useful tool of efficiency analysis where service sector industries or firms such as banks, financial institutions etc. are involved. DEA techniques have been also proved to be particularly suitable in working with limited sample sizes (Evanoff and
Israilevich, 1991). Following Charnes et al. (1978) and assuming CRS, strong disposability o f inputs and outputs and convexity o f the set o f feasible input-output combinations; the
DEA can be presented w ith a simpler analytical framework where firms or DM Us' are faced with their respective input-output vectors and a measure o f the ratio o f all outputs over inputs
is obtained. Among others, the DEA technique provides particular advantage where firms
(e.g. banks and other service sectors firms) are known to produce multiple outputs. Also, under the variable returns to scale (VRS) technologies, as assumed in this study, the DEA allows decomposing technical efficiency (TE) into pure technical efficiency (PTE) and scale efficiency (SE). This provides an insight into the sources o f inefficiencies and helps determine whether banks have been operating at most productive scale size (MPSS). The estimates o f pure technical and scale efficiencies are also expected to provide opportunity to assess the impact o f the substantial changes from consolidation, diversification and rationalization o f the banking sector, on efficiency o f Islamic Banking Operations.
^ Decision Mal 255 In this thesis, Data Envelopment Analysis (DEA) is used due to its ability to capture multiple outputs and to overcome the problems regarding the misspecification of the frontier. Input orientated approach o f D EA under Constant Return to Scale (CRS) and Variable Return to Scale (VRS) is used for the Technical Efficiency measurement o f the commercial and specialised banks. In this study, scale efficiency and Return to Scale which commercial and specialised banks operate is also estimated. The input and output oriented measures o f technical efficiency yield the same estimates when CRS technology is applied in DEA models, whereas the estimates are different under VRS technologies. However, the issue of whether to use input or output oriented measures is essentially trivial. Since ‘linear programming does not suffer from such statistical problems as simultaneous equation bias, the choice o f an appropriate orientation is not as crucial as it is in the case o f econometric estimation’ (Coelli, 1998: 158). In this study, we adopt an output-oriented approach, which could be somewhat consistent with the current environment in Islamic Banking industry in Iran where many banks have been competing for providing improved services and better incentives to their customers. 1. Period of Data and Analysis In this thesis, the period o f data is used from 1995 to 2004, because the some banks data for the year 2005 and onwards are not available, therefore the Windeap 2.1 software cannot generate the efficiency indices results. The earlier plan was to take data for the year 1995 to 2005, but in this chapter as mentioned above analysis restricted till 2004. Ten banks efficiency indices are calculated, interpreted, and discussed, which covers the Post- Revolution, after the country passed the political instability during Revolution( 1975-1980), eight year war with Iraq (1980-1989) and reconstruction (1989- onward) in the Islamic banking industry in I.R.Iran. This study analysis is based on originally collected data with detail items. The secondary data from financial statements (balance sheet and profit/loss statement) o f 10 government owned banks, including 4 specialized banks (Keshavarzi bank, San’ at o M a’adan bank, Maskan bank, and Tosaeh Saderat Bank), and 6 commercial banks (Saderat bank, Sepah bank, Terjarat bank, M elli bank o f Iran, Mellat Bank, Refah Bank) which cover more than 85% o f the banking business in country, are collected, interpreted and discussed. In DEA method, technical efficiency o f commercial banks is calculated under 256 Constant Returns to Scale (CRS) and Variable Return to Scale (VRS). For each year, efficiency frontier o f the commercial and specialized banks is estimated by using that year’s output-input variables data o f particular banks throughout the research period. While collecting data, more than 90% percent o f banking system assets in the respective period have been covered. This period represents reforms policy period along with macroeconomic stability, after long period of political instability, war, and reconstruction in the country. This period can also represent the performance o f banking sector based on management efficiency in the more liberalized economic and marketization policy in economic atmosphere o f the country. When the decision was made to open the markets for national and international competitiveness with objective o f strengthening the banks efficiency and soundness to enter the WTO, by privatization policies and open the entry o f private as well as foreign banks to market. Therefore, respective period will cover the feedback of reforms policy in banking sector of country. Data Envelopment Analysis Program (DEAP 2.1 Computer Program) developed by Coelli^ (1996) and extended version to run by the windows operating system^ is used to estimate the efficiency of commercial and specialized banks under different specifications. 2. Selection of Input and Output Variables In the respective efficiency specification (Technical Efficiency), efficiency of a commercial bank is defined as its ability to produce given set of outputs with minimum use of inputs. ‘Reliable’ efficiency prediction requires appropriate definitions and certain assumptions regarding the measurement of input, output. The exclusion of certain important bank inputs and/or outputs might bias the final efficiency measures by distorting construction o f the frontier (the locus of the efficient combination of inputs and outputs). To determine what constitutes inputs and outputs o f banks, one should first decide on the nature o f banking technology. In literature on the theory o f banking, there are two main approaches competing with each other in this regard: the production and the intermediation approaches (Sealey and Lindley, 1977). Like many studies on banking efficiency (e.g., A ly et al., 1990; Zaim, 1995; ^ DEAP refers to Prof. T. Coelli's programme DEAP.EXE, his help file A Guide to DEAD Version 2.1: A Data Analysis (Computer) Program, CEPA Working Pager 96/08, Department of Econometrics, University of New England and his example files and any other material distributed in DEAP. ^ in the currently file named WINDEAP110.EXE or in the file currently named WINDEAP110.ZIP) is copyrighted by Michel Deslierres. 257 DeYoung and Nolle, 1998; Berger and Mester, 1997; Resti, 1997; DeYoung and Hasan, 1998), we adopt the intermediation approach in this paper. Accordingly, we model commercial banks as multi-product firms, producing 3 outputs and employing 4 inputs. All variables except for the input factor o f labor are measured in millions Rials. In this study, the inputs and outputs have been defined following the intermediation approach, which is appropriate for measuring the entire bank level efficiency since it is inclusive o f the variable equivalent to interest expense, which often accounts for one-half to two-thirds o f total costs (Berger and Humphry, 1997). Since Islamic banking is based on interest-free principles, the variables adopted are based on the banking system operation whereas four input variables and three output variables which followed by review o f many studies on banking efficiency and their variable selection.'* The input vector includes: (1) labour [LABOR], the number of full-time employees; (2) physical capital [P H Y C A P IT ] the book value o f premises and fixed assets; (3) total deposits [T O T A LD E P ], the sum o f demand deposits and term-investment deposits (4) number of Branches [BRANCHES] The output vector includes: (1) total loans [loans] including all type o f loans and mode o f financing which outstanding based on Islamic modes (2) investment securities [IN VSECU R], including investment on government securities and central bank securities, (3) gross profit [P R O FIT] the bank profit before tax reduction. While our definition of bank inputs and outputs is not free from short-comings, we believe that it might be a reasonable challenge to improve the way to present bank production in I.R.Iran. 3. Results and Discussion Results o f the study are organised for each year. The indices are compared and discussed for each table. The overall mean efficiency index o f banking system during the respective period are reviewed. In respective specification, technical efficiency o f commercial and specialized banks is estimated under constant returns to scale (CRS). Under constant returns to scale (CRS) specification of DEA, estimated technical efficiency scores of commercial and * The table of input/output variables of bank efficiency studies has been derived and designed in chapter three as methodology of research 258 specialized public banks for year 1996 on input-orientated DEA model are briefly reported in tables 6-1, and 6-2 while the correspondent efficiency score on output-orientated DEA model reported in table 6-3. The results of DEAP 2.1, software for 1996 reveals the technical efficiency and scale efficiency indices and mode o f return to scale Efficiency Results for Year 1996 According to the results from table 6-1, in 1996, Keshavarzi Bank (Agriculture bank), Sanat O- Madan Bank (Industry and mine bank), and Tose E-Saderat Bank (Export Development Bank) was technically efficient (score=1.00) in CRS model but Melli Bank of I.R.Iran (MBI), Mellat Bank (MB), Maskan Bank (BM), Keshavarzi Bank (KB), Sanat 0 Madan Bank (SOMB) and Tose E- Saderat Bank (TSB) was technically efficient (Score^l.OO) under VRS model. Accordingly Keshavarzi Bank, Sanat o- Madan Bank and Tose E-Saderat Bank was scale efficient banks. Therefore for this year in CRS model only three specialized banks KB, SOMB, TSB was fully efficient while, in VRS model all four specialize banks (including M B, KB, SOMB and TSB) along with M elli Bank o f Iran as largest commercial bank were fully efficient. Table 6-1- Technical Efficiency, Scale Efficiency and Return to Scale for input-orientated-1996 Bank/ Efficiency TE Rank of the bank TE Rank of the Bank Return to SE Index (CRS) under CRS (VRS) under VRS Scale Melli Bank of 6 1 0.665 1.00 0.665 DRS Iran Bank Saderat 0.347 10 0.40 10 0.868 DRS Tejarat Bank 0.424 9 0.624 8 0.680 DRS Mellat Bank 0.738 5 1.00 1 0.738 DRS Sepah Bank 0.625 7 0.82 7 0.762 DRS Refah Bank 0.504 8 0.537 9 0.939 DRS Maskan bank 0.777 4 1.00 1 0.777 DRS Keshavarzi Bank 1.00 1 1.00 1 1.00 - Sanat o-Madan 1 1 1.00 1.00 1.00 - Bank Toseh Saderat 1 1 1.00 1.00 1.00 - Bank Mean 0.708 0.838 0.843 Note: TE (CRS) = Technical Efficiency from Constant Return to Scale (CRS) DEA TE (VRS) = Technical Efficiency from Variable Return to Scale (VRS) DEA SE = Scale Efficiency= CRS/ VRS Further, when banks are ranked for TE (CRS) and TE (VRS), the most inefficient bank for year 1996 was Saderat Bank with estimated efficiency score 0.347 in CRS model (10*'^ rank) and 0.40 in VRS model (10*'’ rank). Tejarat Bank scores with 0.424 in CRS model (9”’ rank) and Refah bank scores 0.537 efficiency in VRS model (rank 9'*’). The most scale inefficient 259 bank was Melli bank of Iran by 0.665 as largest state bank and Tejarat bank with 0.680 score. The overall mean of TE (CRS), TE (VRS) and SE for year 1996 was 0.708, 0.838, and 0.843 respectively. From the table, one can see that the average technical efficiency score of specialized banks in year 1996 is higher as compared to commercial banks. Average efficiency score of specialized banks are 0.994, 1.00 and 0.994 for TE (CRS), TE (VRS) and SE respectively. Whereas, average efficiency scores of commercial banks are 0.55, 0.730, and 0.775 for TE (CRS), TE (VRS) and SE respectively. In this year, all the commercial banks hold decreasing returns to scale, while for specialised banks it was constant returns to scale, except for Maskan bank which hold decreasing return to scale. According to table 6-2 efficiency scores of commercial and specialised banks estimated in output-oriented approach for year 1996. The figures which are indicated in this table are same in case of CRS method but two approach indicated different efficiency scores in case of VRS method and scale efficiency. Because of the range of efficiency scores among commercial and specialised banks which are somewhat minor difference, therefore banks ranking based on their TE (VRS) in both input-orientated and output-orientated approach has almost hold same TE efficiency ranking. Table 6-2- TE (CRS), TE (VRS), SE and Return to Scale in output-oriented DBA model-1996 Bank/ Efficiency Index TE Rank of the TE Rank of the SE Return Melli Bank of Iran 0.665 6 1.00 1 0.665 DRS Bank Saderat 0.347 10 0.628 9 0.553 DRS Tejarat Bank 0.424 9 0.653 8 0.650 DRS Mellat Bank 0.738 5 1.00 1 0.738 DRS Sepah Bank 0.625 7 0.827 7 0.756 DRS Refah Bank 0.504 8 0.595 10 0.847 DRS Maskan bank 0.777 4 1.00 1 0.777 DRS Keshavarzi Bank 1.00 1 1.00 1 1.00 - Sanat o-Madan Bank 1.00 1 1.00 1 1.00 - Toseh Saderat Bank 1.00 1 1.00 1 1.00 - Mean 0.708 0.870 0.799 Table 6-3- indicates that the inefficient banks could be converted to the technical efficient bank if bank was able to produce obtained level of output by utilising this much less of currently utilised inputs. For example from results for year 1996, table 6-3 indicates the 260 figures that Bank Saderat must decrease the employees 1468 person to reach the fully efficient bank with comparison to peer banks. ______Table 6-3- Summary of output/ input slacks of PEA estimate - 1996______Firm/ outputs Output Variables Input Variables and inputs LOANS INVSECUR PROFIT LABOUR PHYCAPIT TOTALDEP BRANCHES Melli Bank of 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Iran Bank Saderat 0.00 0.00 28076.93 1468.92 0.00 0.00 0.00 Tejarat Bank 0.00 2369769.76 55319.15 0.00 18484.59 1275459.44 0.00 Mellat Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Sepah Bank 0.00 0.00 67952.20 915.69 0.00 562246.31 0.00 Refah Bank 0.00 0.00 37196.46 558.07 10913.27 0.00 0.00 Maskan bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Keshavarzi 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Sanat o- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Madan Bank Toseh Saderat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Mean 0.00 236976.97 18854.47 294.26 2939.78 183770.57 0.00 The input and output orientated measures of technical efficiency yield the same estimates when CRS technology is applied in DEA models, whereas the estimates are different under VRS technologies. However, the issue of whether to use input or output oriented measures is essentially trivial. Since ‘linear programming does not suffer from such statistical problems as simultaneous equation bias, the choice of an appropriate orientation is not as crucial as it is in the case of econometric estimation’ (Coelli, 1998; 158). In this study, we adopt an output- oriented approach, which could be somewhat consistent with the current environment in Islamic Banking industry in I.R.Iran where many banks have been competing for providing improved services and better incentives to their customers. Efficiency Results for year 1997 In selected model specification of DEA, technical efficiency of commercial and specialized banks is calculated under CRS and VRS and scale efficiency for year 1997 in input-oriented DEA model and briefly reported in tables 6-4 and 6-5 while the correspondent efficiency score on output-oriented DEA model reported in table 6-6. The result for 1997 reveals the technical efficiency and scale efficiency and return to scale in table 6-4. 261 Table 6-4-TE (CRS), TE (VRS), SE and Return to Scale in input-oriented approach-1997 Bank/ Return TE Rank of the bank TE Rank of the Bank EfTiciency SE to (CRS) under CRS (VRS) under VRS Index Scale Melli Bank of 0.837 1.00 1 0.837 DRS Iran Bank Saderat 0.676 0.907 0.745 DRS Tejarat Bank 0.779 0.879 0.886 DRS Mellat Bank 0.682 0.761 0.896 DRS Sepah Bank 0.672 10 0.736 10 0.913 DRS Refah Bank 0.675 0.744 0.908 IRS Maskan bank 0.949 0.992 0.957 DRS Keshavarzi 1.00 1.00 1.00 Bank Sanat o- 1.00 1.00 1.00 Madan Bank Toseh Saderat 1.00 1.00 1.00 Bank Mean 0.827 0.902 0.914 Note: TE (CRS) = Technical Efficiency from Constant Return to Scale (CRS) DEA TE (VRS) = Technical Efficiency from Variable Return to Scale (VRS) DEA SE = Scale Efficiency= CRS/ VRS According to results from table 6-4 in 1997, Keshavarzi Bank, Sanat o-Madan Bank, Tose- Saderat Bank was fully efficient under CRS technical efficiency. A ll these three banks are from specialized banks. The most technical efficiency banks under VRS method are M elli Bank o f Iran, Keshavarzi Bank, Sanat o-Madan Bank, Tose- saderat Bank. Furthermore, scale efficiency score for commercial and specialised banks indicated that Keshavarzi bank, Sanat o-madan bank, and Tose- saderat Bank are full scale efficient. While the most inefficient banks under TE (CRS) are Sepah Bank, Saderat Bank and Refah Bank with 0.672, 0.676 and 0.675 percent efficiency scores respectively in 1997; the most inefficient banks under TE (VRS) method were Sepah Bank, Refah Bank and Mellat bank with 0.736, 0.744 and 0.761 percent efficiency scores respectively. Finally the most inefficient banks under scale efficiency scores were Saderat bank (Second largest commercial bank o f the country) and Melli bank of Iran (the largest state owned commercial bank) with 0.745 and 0.834 percent Scale efficiency scores respectively. Among the commercial banks apart from Refah Bank all others are in decreasing return to scale mode, while Refah Bank is in increasing return to scale mode. Maskan bank is decreasing return to scale. The overall mean o f TE (CRS), TE (VRS) and SE for this year was 0.827, 0.902, and 0.914 percent respectively. From the table 6-4, one can see that the average technical 262 efficiency score o f specialized banks in year 1997 is higher as compared to commercial banks. Average efficiency score o f specialized banks for TE (CRS), TE (VRS) and SE were 0.998, 0.998 and 0.989 percent respectively. Whereas, average efficiency scores o f commercial banks for TE (CRS), TE (VRS) and SE were 0.720, 0.837, and 0.863 percent respectively. According to table 6-5 efficiency scores o f commercial and specialised banks estimated in output-oriented approach for year 1998. The figures which are estimated in table are same in case o f CRS method but two methods indicated different efficiency scores in case o f VRS method and scale efficiency even though the difference is very less and ignorable because the ranking o f the banks also from both approaches o f input-oriented and output-oriented are same so we cannot identify the significant difference on the results o f two approaches. Therefore, the range o f efficiency scores among commercial and specialised banks are somewhat same, so the banks ranking, based on their TE (VRS) in both input-oriented and output-oriented was almost same ranking. Table 6-5- TE (CRS), TE (VRS), SE and Return to Scale in output-oriented DEA model-1997 Bank/ Efficiency TE Rank of the bank TE Rank of the Bank Return SE Index (CRS) under CRS (VRS) under VRS to Scale Melli Bank of 5 1 0.837 1.00 0.837 DRS Iran Bank Saderat 0.676 8 0.937 6 0.721 DRS Tejarat Bank 0.779 6 0.881 7 0.884 DRS Mellat Bank 0.682 7 0.764 9 0.892 DRS Sepah Bank 0.672 10 0.773 8 0.869 DRS Refah Bank 0.675 9 0.716 10 0.943 IRS Maskan bank 0.949 4 0.996 5 0.953 DRS Keshavarzi Bank 1.00 1 1.00 1 1.00 - Sanat o-Madan 1 1 1.00 1.00 1.00 - Bank Toseh Saderat 1 1 1.00 1.00 1.00 - Bank Mean 0.827 0.907 0.910 Table 6-6- indicates that the inefficient banks could be converted to technical efficient bank if bank was able to produce obtained level of output by utilising these much less of currently utilised inputs. For example from results for year 1997, table 6-6 indicates the figures that 263 Bank Saderat must decrease the employees 2764 person and also decrease 691 units o f number o f branches, to reach the fully efficient bank in compare to peer banks. Table 6-6- Summary of output/ input slacks of PEA estimate - 1997______Firm/ outputs Output Variables Input Variables and inputs LOANS INVSECUR PROFIT LABOUR PH YC APIT TOTALDEP BRANCHES Melli Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 of Iran Bank Saderat 0.00 0.00 142246.02 2764.14 0.00 4566644.65 691.02 Tejarat Bank 0.00 1082816.34 146905.55 481.18 0.00 2402721.36 0.00 Mellat Bank 0.00 826661.83 172399.64 2331.60 0.00 1438126.91 0.00 Sepah Bank 0.00 490357.53 181615.01 2038.88 0.00 916380.60 0.00 Refah Bank 0.00 0.00 64492.04 2002.63 49776.38 0.00 129.48 Maskan bank 0.00 0.00 68438.43 1548.71 37020.87 0.00 102.61 Keshavarzi 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Sanat o- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Madan Bank Toseh 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Saderat Bank Mean 0.00 239983.57 77609.67 1116.71 8679.72 932387.35 92.31 Efficiency Results for Year 1998 The technical efficiency scores on CRS and VRS methods and scale efficiency for 1998 has been indicated in tables 6-7 and 6-8. According to results from table 6-7, all four specialised banks (Maskan Bank, Keshavarzi Bank Sanat o-Madan Bank and Toseh-Saderat Bank) are fully efficient in terms of TE (CRS), TE (VRS) and SE. Among commercial banks the most efficient bank was Melli Bank of Iran with TE (CRS), TE (VRS), SE of 0.887, 1.00 and 0.887 percent efficiency score respectively. The most inefficient bank under CRS method was Saderat Bank with 0.562 percent efficiency scores. Whereas the most inefficient banks under VRS method was Sepah bank by 0.662 percent. Furthermore, the most inefficient bank in scale efficiency technique was Saderat bank with 0.616 percent efficiency score. Apart from Refah Bank all other commercial banks were in decreasing return to scale mode. Refah Bank was in increasing return to scale in 1998. Overall mean of efficiency index for commercial and specialised banks in 1998 for TE (CRS), TE (VRS) and SE indices was 0.815, 0.905 and 0.898 respectively. Furthermore, average efficiency indices for commercial banks were 0.691, 0.842 and 0.829 for TE (CRS), TE (VRS) and SE respectively. 264 Furthermore, all efficiency indices for specialised banks including TE (CRS), TE (VRS) and SE were fully efficient. Table 6-7- TE (CRS), TE (VRS), SE and return to scale -1998 Firm/ Efficiency TE Ranicing based on Ranking based on Return TE(VRS) SE Index (CRS) TE (CRS) TE (VRS) to Scale Melli Bank of 0.887 1.00 1 0.887 DRS Iran Bank Saderat 0.562 10 0.912 0.616 DRS Tejarat Bank 0.639 0.730 0.874 DRS Meilat Bank 0.673 0.748 0.900 DRS Sepah Bank 0.617 0.662 10 0.932 DRS Refah Bank 0.770 1.00 0.770 IRS Maskan bank 1.00 1.00 1.00 Keshavarzi 1.00 1.00 1.00 Bank Sanat o-Madan 1.00 1.00 1.00 Bank Toseh Saderat 1.00 1.00 1.00 Bank Mean 0.815 0.905 0.898 Table 6-8 indicates that the inefficient banks could be converted to technical efficient bank if a bank is able to produce and obtained level o f output by utilising input/ output variables less o f currently utilised inputs. For example from results for year 1998, table 6-8 indicates the figures that Sepah Bank must decrease the employees 1613 person and also decrease the number o f branches 2112 units reach the fully efficient bank with compare to peer banks. Firni/ outputs Output Input and inputs LOANSINVSECURPROFITLABOURPHYCAPITTOTALDEP BRANCHES Melli Bank of 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Saderat 967284.60 0.00 1098176.60 14945.11 0.00 3211690.85 0.00 Tejarat Bank 0.00 596670.41 0.00 1242.74 0.00 2480301.81 175568.27 Meilat Bank 0.00 464446.57 58559.60 1293.76 0.00 1287377.82 309.59 Sepah Bank 0.00 510768.44 88754.74 1613.71 0.00 1282239.26 2112.14 Refah Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Maskan bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 'Keshavarzi 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Sanat o-Madan 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Toseh Saderat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Mean 96728.46 157188.54 124549.09 1909.53 0.00 826160.97 17799.00 265 Efficiency Results for Year 1999 According to data analysis o f windeap 2.1 from data for year 1999 o f commercial and specialised banks, the technical efficiency scores on CRS and VRS methods and scale efficiency for 1999 has been indicated in tables 6-9 and 6-10. Table 6-9- TE (CRS), Ten [VRS), SE, Return to Scale -1 999 Firm/ TE Ranking based Ranking based on Return Efficiency TE(VRS) SE (CRS) on TE (CRS) TE (VRS) to Scale Index Melli Bank of 0.702 5 1.00 1 0.702 DRS Iran Bank Saderat 0.635 6 0.80 6 0.79 DRS Tejarat Bank 0.586 7 0.730 8 0.804 DRS Mellat Bank 0.579 8 0.754 7 0.768 DRS Sepah Bank 0.523 9 0.577 9 0.906 DRS Refah Bank 0.459 10 0.497 10 0.924 IRS Maskan bank 1.00 1 1.00 1 1.00 - Keshavarzi 1.00 1 1.00 1 1.00 - Bank Sanat o-Madan 1.00 1 1.00 1 1.00 - Bank Toseh Saderat 1.00 1 1.00 1 1.00 - Bank Mean 0.748 0.836 0.890 According to table 6-9, results o f efficiency indices for year 1999 indicated. The table 6-9 shows sum o f Technical efficiency in constant return to scale, technical efficiency in variable return to scale and scale efficiency. The four specialised banks (including; MB, KB, SOMB, TSB) are fully efficient in CRS, VRS method and SE efficiency indices. While the most efficient commercial bank hold efficiency scores for TE (CRS), TE (VRS) and SE with 0.702 by M BI, 1.00 by M B I and 0.924 by RB respectively. On the other hand, the most inefficient banks for TE (CRS), TE (VRS), and SE are Refah Bank by holding 0.459, Refah Bank by 0.497 and M elli Bank o f Iran by 0.702 percent o f efficiency score respectively. Apart from Refah Bank which is in the “ increasing returns to scale” mode, all other commercial banks are in the “ decreasing return to scale” . Furthermore, overall mean o f TE (CRS), TE (VRS) and SE indices for commercial and specialised banks were 0.748, 0.836 and 0.890 percent respectively. From the table 6-9, one can see that the average technical efficiency score o f specialized banks in year 1999 is higher as compared to commercial banks. Average efficiency score o f specialized banks was 1.00 for TE (CRS), TE (VRS) and SE. whereas, average efficiency 266 scores o f commercial banks are 0.580, 0.726, and 0.815 for TE (CRS), TE (VRS) and SE respectively. Further, table 6-10 indicates that the inefficient banks could be converted to technical efficient bank if bank is able to produce and obtained level o f output by utilising input/output variables less of currently utilised inputs. For example from results for year 1999, table 6-10 indicates the figures that Refah bank must decrease the employees 728 person and also decrease the 68 units o f number o f branches to reach the fully efficient bank in compare to peer banks. Table 6-10- Summary o f output/ input slacks o f PEA estimate - 1999______Firm/ outputs Output Variables Input Variables and inputs LOANS INVSECUR PROFIT LABOUR PHYCAPIT TOTALDEP BRANCHES Melli Bank of 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Iran Bank Saderat 0.00 0.00 115359.62 13232.17 0.00 5437858.85 1650.86 Tejarat Bank 0.00 646299.55 113617.18 944.47 0.00 6041472.42 0.00 Mellat Bank 0.00 999953.63 108806.52 1137.70 0.00 3881595.45 0.00 Sepah Bank 0.00 947941.82 408309.61 710.19 0.00 1007353.07 0.00 Refah Bank 0.00 973088.74 0.00 728.49 0.00 532817.61 68.63 Maskan bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Keshavarzi 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Sanat o-Madan 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Toseh Saderat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Mean 0.00 356728.37 74609.295 1675.30 0.00 1690109.74 171.95 Efficiency Results for Year 2000 Tables 6-11 and 6-12 indicate the efficiency estimation results for commercial and specialised banks in year 2000. Table 6-11 indicates the efficiency indices o f TE (CRS), TE (VRS) and SE. According to results revealed by table 6-11, Sanat o-Madan Bank is fully efficient bank by TE (CRS) index while Melli Bank of Iran, Bank Saderat, Mellat Bank, Keshavarzi Bank and Sanat-0 Madan Bank are fully efficient banks by TE (VRS) index. Sanat -O Madan Bank by Scale efficiency index also is fully efficient bank in 2000. Therefore Sanat-0 Madan Bank was only fully efficient bank by all TE (CRS), TE (VRS) and SE efficiency indices. On the other hand, Refah Bank, M elli Bank Iran, Bank Saderat and Mellat Bank with 0.219, 0.395, 0.395 and 0.358 percent efficiency scores are the most inefficient banks in terms o f TE (CRS), Refah Bank was the most inefficient bank by 0.331 percent score o f TE (VRS) and M elli Bank Iran, Bank Saderat and Mellat Bank are the most 267 inefficient banks with 0.395, 0.395 and 0.405 percent scores in terms o f SE indices. The overall mean efficiency index o f commercial and specialised banks for TE (CRS), TE (VRS) and SE indices were 0.570, 0.887 and 0.640. From the table 6-11 one can see that the average technical efficiency score o f specialized banks in year 2000 is higher as compared to commercial banks. Average efficiency score o f specialized banks was 0.871, 0.977 and 0.893 for TE (CRS), TE (VRS) and SE methods. Whereas, average efficiency scores o f commercial banks were 0.373, 0.826, and 0.470 for TE (CRS), TE (VRS) and SE methods respectively. Tab e6-ll-^PE (CRS), TE (VRS), SE, [letum to Scale -2000 Firm/ Efficiency TE Ranking based on Ranking based on Return to TE(VRS) SE Index (CRS) TE (CRS) TE (VRS) Scale Melii Banic of Iran 0.395 7 1.00 1 0.395 DRS Bank Saderat 0.395 7 1.00 1 0.395 DRS Tejarat Bank 0.428 5 0.834 9 0.513 DRS Mellat Bank 0.358 9 0.882 8 0.405 DRS Sepah Bank 0.417 6 0.914 6 0.457 DRS Refah Bank 0.219 10 0.331 10 0.660 DRS Maskan bank 0.680 4 1.00 1 0.680 DRS Keshavarzi Bank 0.907 2 1.00 1 0.907 DRS Sanat o-Madan 1.00 1 1.00 1 1.00 - Bank Toseh Saderat Bank 0.898 3 0.911 7 0.985 IRS Mean 0.570 0.887 0.640 Table 6-12 indicates that the inefficient banks could be converted to technical efficient bank if bank was able to produce obtained level of output by utilising these much less of currently utilised inputs. For example from results for year 2000, table 6-12 indicates that Refah bank must decrease 297 person o f employees and 136 units o f the number o f branches to reach the fully efficient bank with comparison to peer banks. Table 6-12- Summary o f input and output slacks - 2000 Firm/ outputs Output Variab es Input Variables and inputs LOANS INVSECUR PROFITLABOURPHYCAPIT TOTALDEPBRANCHES Melii Bank of 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Saderat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tejarat Bank 0.00 1048627.05 422651.05 693.17 0.00 0.00 0.00 Mellat Bank 0.00 1152096.42 139927.00 1628.95 0.00 20027009.484 0.00 Sepah Bank 0.00 0.00 466248.46 1347.87 104058.78 0.00 0.00 Refah Bank 0.00 1127582.71 168156.70 297.44 0.00 18443195.465 136.807 Maskan bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Keshavarzi 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Sanat o-Madan 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Toseh Saderat 33180.0 1440195.0 205324.00 14.129 111994.52 0.00 6.866 Mean 3318.0 476850.11 140230.72 398.157 21605.33 3847020.495 14.367 268 Efficiency Results for Year 2001 Table 6-13 indicates the TE (CRS), TE (VRS), SE figures in 2001. Sanat o-Madan Bank and Toseh -Saderat Bank were the most efficient banks in terms o f TE (CRS), while under TE (VRS), all four specialized Banks and Melli Bank of Iran, Saderat Bank were fully efficient banks and finally in terms o f SE index, Sanat o-Madan Bank and Toseh - Saderat Bank were fully efficient. The most inefficient banks under TE (CRS) were Refah bank and Sepah Bank withO.321 and 0.322 efficiency scores respectively. Under TE (VRS), Refah Bank and Sepah Bank with 0.617 and 0.794 efficiency scores; moreover Saderat Bank and M elli Bank o f Iran with 0.343 and 0.344 efficiency scores were the most inefficient banks. Among the overall commercial and specialized banks all were decreasing return to scale. The overall mean o f TE (CRS), TE (VRS), SE for 2001 were 0.548, 0.921 and 0.584 respectively. Finally we can compare the average efficiency indices o f specialized and commercial banks. Though the commercial banks hold the average TE (CRS), TE (VRS), SE o f 0.346, 0.868 and 0.407 efficiency scores respectively. The special banks hold the average TE (CRS), TE (VRS), SE with 0.850, 1.00 and 0.850 efficiency scores respectively. Table 6-13- TE (CRS), TE (VRS), SE, Return to Scale -2001 Firm/ Efficiency TE Ranking based Ranking based Return TE(VRS) SE Index (CRS) on TE (CRS) on TE (VRS) to Scale Melli Bank of 0.344 7 1.00 1 0.344 DRS Iran Bank Saderat 0.343 8 1.00 1 0.343 DRS Tejarat Bank 0.383 5 0.908 7 0.422 DRS Mellat Bank 0.363 6 0.892 8 0.407 DRS Sepah Bank 0.322 9 0.794 9 0.406 DRS Refah Bank 0.321 10 0.617 10 0.521 DRS Maskan bank 0.808 3 1.00 1 0.808 DRS Keshavarzi Bank 0.593 4 1.00 1 0.593 DRS Sanat o-Madan 1.00 1 1.00 1 1.00 - Bank Toseh Saderat 1.00 1 1.00 1 1.00 - Bank Mean 0.548 0.921 0.584 Table 6-14 indicates that the inefficient banks could be converted to technical efficient bank if bank was able to produce obtained level of output by utilising these much less of currently utilised inputs. For example, from results for 2001, that is obvious that Refah bank must 269 decrease 1416 person from number o f employees and decrease number o f branches 320 t( reach the fully efficient bank. Table 6-14- Summary of input and output slacks - 2001 Firm/ outputs Output Variables Input Variables and inputs LOANS INVSECUR PROFIT LABOUR PHYCAPIT TOTALDEP BRANCHES Melli Bank of 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Iran Bank Saderat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tejarat Bank 0.00 729019.60 93200.70 3867.35 0.00 0.00 461.82 Mellat Bank 0.00 534988.08 223788.46 1291.93 0.00 0.00 180.35 Sepah Bank 0.00 0.00 54940.58 1081.27 0.00 0.00 105.55 Refah Bank 0.00 0.00 0.00 1416.21 101183.26 0.00 320.92 Maskan bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Keshavarzi 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Sanat o-Madan 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Toseh Saderat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Mean 0.00 126400.76 37192.97 765.67 10118.32 0.00 106.86 Efficiency Results for Year 2002 Table 6-15 indicates the TE (CRS), TE (VRS), SE figures in 2002. Sanat o-Madan Bank an( Toseh -Saderat Bank were the most efficient banks in terms o f TE (CRS), while under TI (VRS), all four specialized Banks and M elli Bank o f Iran, Saderat Bank, Mellat Bank an( Tejarat Bank were fully efficient banks and finally in terms o f SE index, Sanat o-Madai Bank and Toseh - Saderat Bank were fully efficient. The most inefficient banks under TE (CRS) were Refah bank and Saderat Bank withO.37: and 0.471 efficiency scores respectively. Under TE (VRS), Refah Bank and Sepah Bank witi 0.463 and 0.965 efficiency scores; moreover Saderat Bank and Sepah Bank with 0.471 am 0.553 efficiency scores were the most inefficient banks. Among the overall commercial an( specialized banks all were decreasing return to scale. The overall mean o f TE (CRS), Tl (VRS), SE for 2002 were 0.565, 0.943 and 0.704 respectively. Finally we can compare th average efficiency indices o f specialized and commercial banks. Though the commercia banks hold the average TE (CRS), TE (VRS), SE o f 0.515, 0.904 and 0.590 efficiency score respectively. The special banks hold the average TE (CRS), TE (VRS), SE with 0.875, 1.0' and 0.875 efficiency scores respectively. 270 Table 6-15- TE (CRS), TE (VRS), SE, Return to Scale -2002 Firm/ Efficiency TE Ranking based Ranking based Return TE(VRS) SE Index (CRS) on TE (CRS) on TE (VRS) to Scale Meili Bank of 0.509 1.00 1 0.509 DRS Iran Bank Saderat 0.471 1.00 0.471 DRS Tejarat Bank 0.608 1.00 0.608 DRS Mellat Bank 0.595 1.00 0.595 DRS Sepah Bank 0.534 0.965 0.553 DRS Refah Bank 0.373 10 0.463 10 0.805 DRS Maskan bank 0.739 1.00 0.739 DRS Keshavarzi Bank 0.761 1.00 0.761 DRS Sanat o-Madan 1.00 1.00 1.00 Bank Toseh Saderat 1.00 1.00 1.00 Bank Mean 0.659 0.943 0.704 Table 6-16 indicates that the inefficient banks could be converted to technical efficient bank if bank was able to produce obtained level o f output by utilising these much less o f currently utilised inputs. For example, from results for 2002 it is obvious that Refah bank must decrease 952 persons from number o f employees and decrease number o f branches 117 to reach the fully efficient bank. Table 6-16- Summary o f input and output slacks - 2002 Firm/ outputs Output Variables Input Variables and inputs LOANS INVSECUR PROFIT LABOUR PHYCAPIT TOTALDEP BRANCHES Melli Bank of 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Iran Bank Saderat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tejarat Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Mellat Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Sepah Bank 0.00 0.00 0.00 0.00 2930.01 0.00 142.96 Refah Bank 0.00 519744.82 0.00 952.88 0.00 0.00 117.06 Maskan bank 0.00 0.00 0.00 44.75 0.00 0.00 0.00 Keshavarzi 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Sanat o-Madan 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Toseh Saderat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Mean 0.00 51974.48 0.00 99.76 3272.09 0.00 26.03 Efficiency Results for Year 2003 Table 6-17 indicates the TE (CRS), TE (VRS), SE figures in 2003. Sanat o-Madan Bank and Keshavarzi Bank, Melli Bank of Iran and Mellat Bank were the most efficient banks in terms 271 of TE (CRS), while under TE (VRS), all four specialized Banks and Melli Bank of Iran, Saderat Bank, Mellat Bank and Tejarat Bank were fully efficient banks and finally in terms of SE index, Melli Bank of Iran, Saderat Bank and Mellat, along with Sanat o-Madan Bank and Toseh - Saderat Bank and Keshavarzi Bank were fully efficient. The most inefficient banks under TE (CRS) were Refah bank with 0.555 efficiency score. Under TE (VRS), Refah Bank with 0.564 efficiency scores; moreover Maskan Bank with 0.806 and efficiency scores was the most inefficient bank. Among the overall commercial and specialized banks Tejarat bank and Maskan bank were decreasing return to scale while Sepah Bank and Refah Bank were increasing returns to scale. The overall mean o f TE (CRS), TE (VRS), SE for 2003 were 0.928, 0.953 and 0.974 respectively. Finally we can compare the average efficiency indices o f specialized and commercial banks. Though the commercial banks hold the average TE (CRS), TE (VRS), SE o f 0.912, 0.921 and 0.989 efficiency scores respectively. The special banks hold the average TE (CRS), TE (VRS), SE with 0.951, 1.00 and 0.951 efficiency scores respectively. Ta )le 6-17- TE (CRS), TE (VRS), SE, Return to Scale -2003 Firm/ Return TE Ranking based Ranking based Efficiency TE(VRS) SE to (CRS) on TE (CRS) on TE (VRS) Index Scale Melli Bank of 1.00 1 1.00 1 1.00 - Iran Bank Saderat 1.00 1 1.00 1 1.00 - Tejarat Bank 0.976 7 1.00 1 0.976 DRS Mellat Bank 1.00 1 1.00 1 1.00 - Sepah Bank 0.943 8 0.964 9 0.978 IRS Refah Bank 0.555 10 0.564 10 0.983 IRS Maskan bank 0.806 9 1.00 1 0.806 DRS Keshavarzi 1.00 1 1.00 1 1.00 - Bank Sanat o- 1.00 1 1.00 1 1.00 - Madan Bank Toseh Saderat 1.00 1 1.00 1 1.00 - Bank Mean 0.928 0.953 0.974 Table 6-18 indicates that the inefficient banks could be converted to technical efficient bank if bank was able to produce obtained level of output by utilising these much less of currently utilised inputs. For example, from results for 2003 that is obvious that Sepah bank must 272 decrease 4108 persons from number o f employees and decrease number o f branches 438 to reach the fully efficient bank. Table 6-18- Summary of input and output slacks - 2003 Firm/ outputs Output Variables Input Varaibles and inputs LOANS INVSECUR PROFIT LABOUR PHYCAPIT TOTALDEP BRANCHES Melli Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 of Iran Bank Saderat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tejarat Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Mellat Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Sepah Bank 0.00 0.00 85865.65 4108.07 0.00 2808784.55 438.63 Refah Bank 0.00 246124.64 349792.36 1127.73 0.00 0.00 336.71 Maskan bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Keshavarzi 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bank Sanat o- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Madan Bank Toseh 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Saderat Bank Mean 0.00 24612.46 43565.80 523.58 0.00 280878.45 77.53 Efficiency Results for Year 2004 Table 6-19 indicates the TE (CRS), TE (VRS), SE figures in 2004. Sanat o-Madan Bank, Toseh Saderat Bank, Refah Bank and Saderat Bank were the most efficient banks in terms o f TE (CRS) with fully efficient score, while under TE (VRS), all four specialized Banks along with M elli Bank o f Iran, Saderat Bank, Mellat Bank and Tejarat Bank and Refah Bank were fully efficient banks and finally in terms o f SE index, Saderat Bank, Refah Bank along with Sanat o-Madan Bank and Toseh - Saderat Bank were fully efficient. The most inefficient banks under TE (CRS) were Maskan bank with 0.682 efficiency score. Under TE (VRS), Sepah Bank with 0.972 efficiency scores; moreover Maskan Bank with 0.682 efficiency scores was the most inefficient bank under SE score. The overall commercial and specialized banks were decreasing return to scale. The overall mean o f TE (CRS), TE (VRS), SE for 2004 were 0.880, 0.997 and 0.883 respectively. Finally we can compare the average efficiency indices o f specialized and commercial banks. Though the commercial banks hold the average TE (CRS), TE (VRS), SE o f 0.995, 0.921 and 0.903 efficiency scores respectively. The special banks hold the average TE (CRS), TE (VRS), SE with 0.852, 1.00 and 0.852 efficiency scores respectively. 273 Table 6-20 indicates that the inefficient banks could be converted to technical efficient bank if bank was able to produce obtained level of output by utilising these much less of currently utilised inputs. For example, from results for 2004 it is obvious that Sepah bank must decrease 1307 persons from number of employees to reach the fully efficient bank. Table 6-20- Summary of input and output slacks - 2004 Firm/ outputs Output Variables Input Variables a n d in p u ts LOANS INVSECUR PROFIT LABOUR PHYCAPIT TOTALDEP BRANCHES Meili Bank of 0 .0 0 0 .0 0 Ira n 0.00 0.00 0.00 0.00 0.00 Bank Saderat 0 .0 0 0 .0 0 0 .0 0 0.00 0.00 0.00 0.00 Teiarat Bank 0 .0 0 0 .0 0 0.00 0.00 0.00 0.00 0.00 Mellat Bank 0 .0 0 0 .0 0 0.00 0 .00 0 .00 0.00 0.00 S e p a h B a n k 0 .0 0 0 .0 0 7 7 2 5 3 9 .1 9 1307.79 0.00 0.00 0.00 R e fa h B a n k 0 .0 0 0 .0 0 0 .0 0 0.00 0.00 0.00 0.00 Maskan bank 0 .0 0 0 .0 0 0 .00 0 .00 0 .00 0.00 0.00 K e s h a v a rz i 0 .0 0 0 .0 0 0 .00 0 .00 0.00 0.00 0.00 B a n k Sanat o-M adan 0 .0 0 0 .0 0 0 .0 0 0 .00 0.00 0.00 0.00 B a n k Toseh Saderat 0 .0 0 0 .0 0 0 .0 0 0.00 0.00 0.00 0.00 B a n k 0.00 0.00 M e a n 0 .0 0 0 .0 0 7 7 2 5 3 .9 2 130.779 0.00 Technical efficiency on CRS As per table 6-21, the results indicate that the overall average technical efficiency under (CRS) levels o f Islamic banking operations in i.R.lran increased significantly from 1995 to 2004. Further, the technical efficiency (VRS) is steadily increasing, while Scale Efficiency 274 and Technical Efficiency (CRS) have been fluctuating during the study period. However, all efficiency scores including TE (CRS), TE (VRS), and SE had improved during the period of research, which can be consistent with the financial development and reform policy on banking sector o f country. In following tables (6-21, 6-22 and 6-23) give the time trend o f technical efficiency indices o f Iranian banks during the period o f research. Table 6-21- Technical efficiency on CRS 1375 1376 1377 1378 1379 1380 1381 1382 1383 Firm/ Year 21/03/1996 1997 1998 1999 2000 2001 2002 2003 2004 Melli Bank o f 0.665 0.837 0.887 0.702 0.395 0.344 0.509 0.805 Iran Saderat bank 0.347 0.676 0.562 0.635 0.395 0.343 0.471 Tejarat Bank 0.424 0.779 0.639 0.586 0.428 0.383 0.608 0.976 0.861 Mellat Bank 0.738 0.682 0.673 0.579 0.358 0.363 0.595 0.883 SepahBank 0.625 0.672 0.617 0.523 0.417 0.322 0.534 0.943 0.846 Refah Bank 0.504 0.675 0.77 0.459 0.219 0.321 0.373 0.555 Maskan Bank 0.777 0.949 0.68 0.808 0.739 0.806 0.682 Keshavarzi Bank 0.907 0.593 0.761 0.727 Sanat va madan Bank lose e' saderat 0.898 Bank Mean 0.708 Most o f the specialized banks at several years were efficient; especially Sanat o-Madan Bank for all ten years was efficient among the operating banks in system. Among commercial banks, Saderat Bank was efficient in recent years (2003 and 04) and in fact the technical efficiency indices for most o f the commercial banks are improved during respective period. This improvement trend of efficiency indices are consistent with reform policies that has undertaken by government and central bank in regulation aspect as well as ownership and openness o f system which w ill lead to more competitive atmosphere. The Keshavarzi bank and Maskan Bank are two specialized banks which are concerned with agriculture sector and construction & housing sector respectively had decreasing trend o f efficiency index. We can explore this result with imbalance and unstable market in both economic sectors in the country along with more government directions for both banks. 275 Technical efficiency on VRS The status o f efficiency index o f TE (VRS) during period o f research indicated in table 6-22. This shows the changes in mean TE (VRS) efficiency scores over time. In variable return to scale by taking into account the scale effect o f operation factors it has revealed that Melli Bank of Iran as state bank of Iran and biggest commercial bank which handling most government accounts and payments was fully efficient bank and it is interesting to note that again in this model o f TE (VRS), Sanat o- Madan bank is efficient bank among specialized banks with smallest scale among the others. From table 6-22 one can see that the average technical efficiency (in variable return to scale) score for specialized banks were high as compare to commercial banks for year 1996, 97, 98, 99, 2000 and 2001 while for years 2002, 2003 and 2004 in most o f the commercial banks TE (VRS) raised. And also most o f efficiency indices indicate improving trend during the respective period for commercial banks. Table 6-22-Technical Efficiency on VRS 21/03/1996 1997 1998 1999 2000 2001 2002 2003 2004 FirmA'ear 1375 76 77 78 79 80 81 82 83 Melli Bank of Iran 1 1 1 1 1 1 1 1 1 Saderat bank 0.4 0.907 0.912 0.8 1 1 1 1 1 Tejarat Bank 0.624 0.879 0.73 0.73 0.834 0.908 1 1 1 Mellat Bank 1 0.761 0.748 0.754 0.882 0.892 1 1 1 Sepah Bank 0.82 0.736 0.662 0.577 0.914 0.794 0.965 0.958 0.972 Refah Bank 0.537 0.744 1 0.497 0.331 0.617 0.463 0.567 1 Maskan Bank 1 0.992 1 1 1 1 1 1 1 Keshavarzi Bank 1 1 1 1 0.907 0.593 0.761 1 0.727 Sanat va madan 1 1 1 1 1 1 1 1 1 Bank Tose e' saderat 1 1 1 1 0.911 1 1 1 1 Bank Scale Efficiency Efficiency indices and time trend o f scale efficiency indices during the period o f research are discussed in following paragraph: table 6-23 gives the details o f the scale efficiency o f ten banks. 276 Sanat o-Madan bank is scale efficient for all years o f respective period, and also Tose e’ saderat bank was scale efficient bank for all years except 2000. These two specialized banks are smallest banks which their operation is like investment banking and by professional staffs doing PLS (long-term investment) contracts and evaluating the investment plans as well as monitoring the partnership plans. According to outputs o f DEA in 2004 only Saderat bank, Refah bank, Sanat o Madan bank, and Tose e’ Saderat bank was chosen optimal scale according to scale economy theory and others all were oversized and decreasing return to scale. Table 6-23-Scale Efficiency 1375 76 77 78 79 80 81 82 83 FirmA'ear 1996 97 98 99 2000 2001 2002 2003 2004 Melli Bank of 0.665 0.837 0.887 0.702 0.395 0.344 0.509 1 0.805 Iran Saderat bank 0.868 0.745 0.616 0.794 0.395 0.343 0.471 1 1 Tejarat Bank 0.68 0.886 0.874 0.804 0.513 0.422 0.608 0.979 0.861 Mellat Bank 0.738 0.896 0.9 0.768 0.405 0.407 0.505 1 0.883 Sepah Bank 0.762 0.913 0.932 0.906 0.457 0.406 0.553 0.984 0.87 Refah Bank 0.939 0.908 0.77 0.924 0.66 0.521 0.805 0.977 1 Maskan Bank 0.777 0.957 1 1 0.68 0.808 0.739 0.806 0.682 Keshavarzi Bank 1 1 1 1 0.907 0.593 0.761 1 0.727 Sanat va madan 1 1 1 1 1 1 1 1 1 Bank Tose e' saderat 1 1 1 1 0.985 1 1 1 1 Bank The overall average efficiency level o f Islamic Banking operations in I.R.Iran reported in the last row o f reported tables which has been plotted in Figure 6-1 for better understanding o f average efficiency o f banks in the industry and growth pattern over the research period. As the figure suggests, average TE in the industry has been better in 2004, improving over the two previous periods. However, the graph also suggests that SE has been a dominant factor for shaping the overall pattern on TE growth in the industry for most o f the years. 277 Figure 6-1- Overall mean efficiency level of Islamic banking industry in I.R.lran Figure 6-2- Mean efficiency o f Commercial Banks Figure 6-3- Mean efficiency o f Specialized Banks -■-TE(CRS) -A-TE(VRS) -^S E 278 igure 6-4 Mean TE (CRS) o f commercial, specialized and overall banks 1.2 T------ Overal banks lir —Commercial banks -^Specialised banks Figure 6-5- Mean TE (VRS) o f Commercial, Specialized and overall banks -Overal ■Commerc iai banks 0.4 -^Specialise d banks 0.2 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 6-6 -Mean SE of commercial, specialized and overall banks 279 4. Summary and conclusion Based on the bank specific efficiency scores, Sanat-0 Madan Bank appears to be the most efficient in the industry. Sanat-o Madan Bank achieves full technical efficiency (sourced from full pure technical and scale efficiencies) for the entire period under study. Public specialized banks seem to be highly efficient with regard to its Islamic banking services (long-term PLS mode o f contracts), as the Sanat-0 Madan bank, Toseh- Saderat Bank achieved full TE (CRS), TE (VRS) and SE in most o f the years, except 2000 with 11% inefficiency. Four specialized banks, viz. Sanat o-Madan bank, Keshavarzi bank, Maskan bank and Toseh- Saderat bank reported have been found to be pure technically efficient (VRS), by the end period. However, these two o f these banks record considerable scale inefficiencies (Maskan and Keshavarzi Bank). Looking at the overall TE (VRS) scores, it is found that two commercial banks, viz. M B I and SB achieved full efficiency in some years, especially from 2000 onwards. Similarly, two specialized banks viz. SOMB and TSB gained full efficiency EXCEPT IN 2000. KB lost its efficiency after 2000 in terms of TE(VRS) and SE. In the case o f SB and M BI, efficiency scores o f SE and TE(VRS) significantly improved to fully efficient position in 2003 and 2004. Having achieved full SE in 2003, it is noted that SE o f this bank dropped to 80.5% and in 2004. 280