Bank Performance and Efficiency in Uzbekistan

Abstract

The development of financial system in Uzbekistan over the last decade puts lots of challenging tasks for the managers of this financial institutions and regulatory bodies. These tasks on its turn demand application of new innovative approaches into the banking system. As a reflection from these issues this paper seeks to apply relatively new method of performance measurement for this country called Data Envelopment Analysis (DEA). For measuring the efficiency it uses two basic DEA models under the assumptions of constant and variable returns to scale. By using these analyses it seeks to measure and break down the efficiency levels of Uzbek banks during 2004-2006. The results have shown that the overall efficiency levels of banks on average decreased during this period. Additionally, it breaks down overall efficiency level of the banks into that originating from the technical efficiency and scale efficiency. The study found that the main source of inefficiency was due to the technical efficiency. By going further the DEA analysis was able to investigate the reasons for inefficiency for each individual bank. It then compared the relative performance between the private, joint-stock and foreign banks for which no significant divergence were found. The investigation of differences between the small, medium and large banks lead to the observation of significant difference between the small and medium sized banks.

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