Chapter Illustrates the Procedure and Structure of the Research

中國文化大學財務金融學系碩士論文 Master program, Department of Banking and Finance College of Business Chinese Culture University Master Thesis 泰國商業銀行績效之評量 ─ 資料包絡分析法之應用 Rating of commercial banks efficiency in Thailand: DEA Approach 指導教授 : 施光訓王譯賢 Advisor: Kuang-Hsun Shih, Ph.D. Yi-Hsien Wang, Ph.D. 研究生 : 王天美 Graduate Student: Pattra Tienmongkol 中華民國 102 年 1 月 January, 2013 Rating of commercial banks efficiency in Thailand: DEA Approach Student：Pattra Tienmongkol Advisor：Prof. Kuang-Hsun, Shih Prof. Yi-Hsien Wang Chinese Culture Universit y ABSTRACT This study aims to examine the relative efficiency of 19 Thai commercial banks during 2006 to 2010 by utilizing Data Envelopment Analysis (DEA) via operation approach and intermediation approach. The analysis conducted with the 19 commercial banks in Thailand from 2006 until 2010. The data source of this study is Bureau Van DIJK‘s Bank Scope database. The banks‘ unconsolidated statements are utilized if available. Regarding the Database, the evaluation covers 17 local Thai commercial and retail and 2 foreign banks with a full branch (one location) in Bangkok. The main findings in term of size, large banks are superior over medium and small banks via operation approach probably due to their economies of scales, while small banks are the most efficient ones under intermediation approach since they possibly to have a comparative advantage in providing lending relationship to small borrowers and offer less criteria for loan approval. In term of ownership status, foreign-owned banks perform the best role as financial intermediaries via intermediation approach seemingly owning to their reputation among financial institutions and their higher loan interest rate. State owned banks are inferior to private domestic and foreign banks since they appear to have lower net interest rate but higher NPL and overhead cost. Keywords: Technical Efficiency, Thai Commercial Banks, Data Envelopment Analysis, Operation Approach & Intermediation Approach. iii Acknowledgement First of all, I would like to sincerely thank my thesis advisor, professor Kuang-Hsun Shih, professor Yi-Hsien Wang and professor Fu-Ju Yang, for their help guidance and valuable comments throughout every steps of my thesis completion. Even though they have many advisees under their responsibilities, their immediate responses and suggestions always exist. I could not finish this dissertation without their contribution. In addition, I would like to thank you all of my friends in Taiwan and in Thailand for all their useful suggestions, helps and encouragements during this hard time. Moreover, I would like to thank Chinese Culture University for the full scholarship and the outstanding MBA program requiring this research study that encourages me to finish this thesis. Finally, thank to my dear family for their unconditional love, understanding and continuously support my study. Pattra Tienmongkol 1 January 2013 iv CONTENTS ABSTRACT．．．．．．．．．．．．．．．．．．．．．．．．．．．．． iii ACKNOWLEDGEMENT．．．．．．．．．．．．．．．．．．．．．．． iv LIST OF TABLES．．．．．．．．．．．．．．．．．．．．．．．．．． vii LIST OF FIGURES．．．．．．．．．．．．．．．．．．．．．．．．． viii CHAPTER ONE INTRODUCTION．．．．．．．．．．．．．．．．．．． 1 1.1 Research Background and Motivation．．．．．．．．．．．． 1 1.2 Research Objectives．．．．．．．．．．．．．．．．．．． 3 1.3 Research Project and Scope of Study．．．．．．．．．．．．．．．．．．．． 4 1.4 Research Procedure and Research Structure．．．．．．．．．． 4 CHAPTER TWO LITERATURE REVIEW．．．．．．．．．．．．．．．． 7 2.1 Overview of Thai Banking Industry ．．．．．．．．．．．．． 7 2.2 Definition of Key Concept．．．．．．．．．．．．．．．． 13 2.3 A survey of Bank Efficiency studies ．．．．．．．．．．．．．．．．． 15 2.4 Data Envelopment Analysis (DEA)．．．．．．．．．．．．．．．．． 25 CHAPTER THREE RESEARCH DESIGN AND METHODOLOGY．．．．．． 34 3.1 Measurement of Efficiency．．．．．．．．．．．．．．．．．． 34 3.2 DEA Approaches．．．．．．．．．．．．．．．．．． 36 3.3 Sample and Data Collections．．．．．．．．．．．．．．．．．． 38 3.4 Input and Output Specifications．．．．．．．．．．．．．．．．．．．．． 40 3.5 The Application of Data Envelopment Analysis (DEA)．．．．．．．．． 41 CHAPTER FOUR RESEARCH RESULTS．．．．．．．．．．．．．．．． 42 4.1 Introduction．．．．．．．．．．．．．．．．．．．．．．． 42 4.2 Efficiency Scores under Operation Approach．．．．．．．．．．．．．．．．． 42 v 4.3 Efficiency Scores under Intermediation Approach．．．．．．．．．．．． 45 4.4 The comparison between two approaches．．．．．．．．．． 48 4.5 Empirical Results categorized by Size ．．．．．．．．．．． 50 4.6 Empirical Results categorized by Ownership status．．．．．．． 53 CHAPTER FIVE CONCLUSION AND SUGGESTIONS．．．．．．．．．． 57 5.1 Conclusion．．．．．．．．．．．．．．．．．．．．．．． 57 5.2 Research Limitations．．．．．．．．．．．．．．．．．．．． 60 5.3 Future Research Directions．．．．．．．．．．．．．．．．．．．． 62 REFERENCES．．．．．．．．．．．．．．．．．．．．．．．．．．． 63 vi LIST OF TABLES Table 1-1 Scope of Study．．．．．．．．．．．．．．．．．．．． 4 Table 2-1 Thailand's Financial Sector, Pre- and Post-Crisis．．．．．．． 13 Table 4-1 Efficiency of 19 Commercial Banks via Operation Approach 43 during 2006-2010 ．．．．．．．．．．．．．．．．．． Table 4-2 Efficiency of 19 Commercial Banks via Intermediation Approach 46 during 2006-2010．．．．．．．．．．．．．．．．．．．．．．．． Table 4-3 Efficiency of 19 Commercial Banks via Operation Approach categorized by Size during 2006-2010．．．．．．．．．．．．．．．．．．． 50 Table 4-4 Efficiency of 19 Commercial Banks via Intermediation Approach 51 categorized by Size during 2006-2010．．．．．．．．．．．．．．．．．．． Table 4-5 Efficiency of 19 Commercial Banks via Operation Approach categorized by Ownership status during 2006-2010．．．．．．．．．．． 54 Table 4-6 Efficiency of 19 Commercial Banks via Intermediation Approach 55 categorized by Ownership status during 2006-2010．．．．．．．．．．． Table 5-1 Summary of the study results comparing to the results from the 60 same analysis approaches in previous researches．．．．．．．．．．． vii LIST OF FIGURES Figure 1-1 The Flow Chart of this Research Project．．．．．．．．．．．．．．．． 5 Figure 2-1 Simple Illustration of DMU．．．．．．．．．．．．．．．． 28 Figure 4-1 Comparing Efficiency of Commercial Banks via Operation approach and Intermediation approach during 2006-2010．．．． 48 Figure 4-2 Efficiency of Commercial Banks via Operation approach categorized by Size during 2006-2010．．．．．．．．．．．． 51 Figure 4-3 Efficiency of Commercial Banks via Intermediation approach categorized by Size during 2006-2010．．．．．．．．．．．．．．．． 52 Figure 4-4 Efficiency of Commercial Banks via Operation approach categorized by Ownership status during 2006-2010．．．．．．．．．．． 54 Figure 4-5 Efficiency of Commercial Banks via Intermediation approach categorized by Ownership status during 2006-2010．．．．．．．．．．． 55 viii CHAPTER ONE INTRODUCTION 1.1 Research Background and Motivation In the economy of capitalism, financial system plays a vital role in pooling the transfer of resources between the economic sectors, the capitalists or the savers and the fund seekers. This will be leading to the investment, production and unemployment which are the major driving forces of the growth and the stability of the economic system. Hence, the efficiency of financial system will enable the system to perform its role smoothly (Bank of Thailand, 2012) The financial system in Thailand consists of various sectors: financial institutions, capital markets (bond and stock markets), insurance sector (life insurance and non-life insurance), financial markets (money market and foreign exchange market), other financial market, and non-banks financial intermediaries. The Thai financial institutions comprises a variety of organizations which are commercial banks, financial enterprises, credit fancier companies, specialized financial institutions (SFIs), and Micro-Credits (Bank of Thailand, 2012). Commercials banks have long dominated to Thailand‘s financial system. In 2010, over 15 trillion baht of total assets held by financial institutions in Thailand. Commercial banks accounted approximately for 77.25 percent of the banking industry. Also the large amount of deposit of over 7 trillion baht is roughly 73 percent of the Gross Domestic Product (GDP). Meanwhile, banking loans rose by 12 percent at the end of 2010 and the commercial banks offered loaning over 8 trillion baht, representing 84.76 percent of GDP 1 (Chansarn, 2008). Since commercial banking is the key dominant player in the national economy, the study of efficiency of Thai commercial banks is very interesting and ultimate issues. After the East Asian crisis in 1997, originated in Thailand, most of the bank regulators influenced by the crisis implemented measures to enhance and strengthen the banking system. Thai government started to liberalize its financial market. One of the ultimate goals of the financial liberalization is to improve efficiency of the financial sector. However, the effectiveness of such policies for the crisis has attracted very little investigation (Thoraneenitiyan, 2009). After struggling with the enormous non-performing loans and the devaluation of Thai baht, Thai commercial banks can now make higher profit and has regained people and investors‘ trust. Furthermore, banks generally have had enough buffer capital for expected losses as capital ratios remained strong in 2010, showing a stronger financial position for Thai banking sectors. All major Thai banks reported increased net profit in 2010, mainly owning to the combined effects of strong growth in net interest, non-interest and dividend income, as well as declined provisions as asset quality improved (Thoraneenitiyan, 2009). Going forward, Thai government has continued to implement the Financial Sector Master Plan II (FSMP II) after the first plan utilization during 2004-2009 to improve efficiency and competitiveness of the financial institutions system (Bank of Thailand, 2006). The financial Sector Master Plan (FSMP) was jointly

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