Slacks-based efficiency measures for predicting bank performance

Data envelopment analysis (DEA) is a non-parametric method in which multiple inputs and outputs are possibly useful measuring the accomplishments in banking industry. However, due to a time lag, the evaluation results usually arrive too late for the evaluated banking institutions to react timely. This paper employs slacks-based efficiency measures, i.e., considering the slacks in input and output factors, to measure the performances of 24 commercial banks in Taiwan. Based on their financial forecasts, we calculate the efficiencies of the commercial banks beforehand. We found that the efficiency scores calculated from the data contained in the financial statements published afterwards are not significant from the efficiency scores that calculated from the financial forecasts. The results also show that this study precisely predicts the bad performances of the bank in advance.