Measuring the Technical Efficiency for the Shipping Banks—An Approach Using Data Envelopment Analysis

Abstract

The international transportation industry involves various sectors, shipping being one with particular characteristics which differentiates it from others especially as relevant capital risk is concerned. Within this scope, shipping banks are required to assess a number of factors in order to limit the risk from loans, considering the investment capital required. The efficiency of shipping banks is particularly important as it may affect the borrowing level and consequently the financial situation and investment activity in shipping market. This paper examines the Technical Efficiency (TE) of 71 banks operating worldwide in the maritime sector from 2005 to 2010, which is the period that the shipping industry reached its peak and one of its lowest point, making extremely difficult to secure debt finance in shipping, by using Data Envelopment Analysis (DEA) and presents the factors which may affect their technical efficiency, through the application of Regression Analysis. Based on the paper results, most banks during the study period are technically inefficient, whereas TE is proved to be higher under the assumption of variable returns to scale (VRS DEA model) when comparing to constant returns (CRS DEA model). Statistically significant variables are total deposits and total assets for both TECRS and TE-VRS and ROE (Return On Equity) for TE-VRS, providing significant information regarding factors on which management should further focus, in order to maintain and reinforce technical efficiency with respect to their strategy for financing shipping sector.