Bank efficiency in Albanian banking system: dea approach

Abstract

Financial system in Albania is bank oriented as financial market is not active. This is the main reason why should 
be an intense attention to these financial institution. Banking system makes most part of financial system so it is 
vital for  Albanian economy to evaluate time after time bank efficiency as the private sector finds there all the 
funds needed for their development. Even more in these times as financial crisis is knocking in all doors, we 
should estimate the position our banks have and take care of future actions to prevent additional crisis as 
Albania.  
With this paper I intend to present an overview of Albanian banking system and evaluate its efficiency during the 
last 5 years, using some traditional accounting approaches in complimentary with new approaches. 
During the analysed period the impact on bank efficiency on the following factors is studied: change property,  
introduction of foreign investors, competition, structure of bank assets, central bank policy. 
The limitations of traditional accounting approaches for bank efficiency estimation are discussed in comparative 
with some new approaches like Data Envelopment Analysis. For this purpose it is used the Intermediation and 
Operating approach, a model of DEA.  Smaller banks are more competitive and efficient than bigger banks in the 
context of internal financial system. 
This is the first time that the approaches mentioned above are used to measure the banks efficiency in a 
transition economy like Albania. It is very important to measure the bank efficiency of Albanian banks as the 
banking system with a two tier level is new in a time context, as before `90 there was only one government 
owned bank.