BANK EFFICIENCY EQUATION USED*

Measures Bank
Performance
WHY? Sustainability of banking institutions
importance determinants of economic prosperity
Utilized Data Envelopment Analysis (DEA) to better represent
the efficiency level of banks Prices of input, w = labor, physical capital & deposits
Prices of output, r = loans, investments & off B/S items

Malaysian Bank Efficiency

Cost Efficiency Profit Efficiency Technical Efficiency
Ability to minimize cost Ability to maximize profits Ability to utilize production factors

Effectiveness of FSMP I and II policies (YOY Performance)

DETERIORATED STABLE DROPPED & REBOUND
FSMP Phase I : 68% FSMP Phase I : 82% FSMP Phase I : 87%

FSMP Phase II : 42% FSMP Phase II : 83% FSMP Phase II : 77%

FSMP II Phase I : 36% FSMP II Phase I : 82% FSMP II Phase I : 80%

Average Score 48.99%
31.7% in 2015
Impacted by
Implementation of GST
( Increase in Price Output )
Average Score 79.16% Average Score 84.19%
LOWEST in 2008 STABLE over time
Impacted by Indicates
Reduction in sales of financial Banks stable in resource
product & service (result from allocation after pricing of
the impact of GFC ) inputs & outputs factored out

Observation: Policies and measures in FSMP I and II only translated into BETTER
PROFIT & TECHNICAL EFFICIENCY, but not into better cost-efficiency

ISLAMIC CONVENTIONAL
BANK VS BANK
55.9% 69.92%
Average cost low Average cost high
COST
EFFICIENCY

Outperform during Outperform during

92% 87%
Phase 1 of FSMP I PROFIT Phase 1 of FSMP II
EFFICIENCY

Lowest value during Lowest value during

87% Phase 1 of FSMP I 89%
TECHNICAL Phase 1 of FSMP II
EFFICIENCY

Observation: ISLAMIC BANK MORE STABLE THAN CONVENTIONAL BANK since it is

highly regulated in nature, less speculative and has less risky investment

*FSMP: Financial Sector Master Plan