Performance Evaluation in Bank Branch with Two-Stage DEA Model

Data Envelopment Analysis (DEA) has been applied in many studies in the banking sector. Conventional DEA models consider the system as a single-process black box. There are however a number of so-called network DEA approach that consider the system as composed by distinct processes or stages, each one with its own inputs and outputs and with intermediate flows among the stages. In this paper some of these approaches that have been applied to banking sector are reviewed and in particular applications of two-stage DEA to Iranian banking branches are presented and discussed. The conclusions of this research are that two-stage DEA models have a greater discrimination power than conventional, single-process DEA and since they allow a more finegrained analysis their results are generally more valid and useful. The main drawback is the need for more detailed data (i.e. at the process level) and the greater complexity of the resulting models, especially if there are inputs or outputs that are shared among the processes.