Predicting change in bank efficiency in Jordan: a data envelopment analysis

Purpose – This study aims to investigate the relative efficiency pattern of Jordanian banks during the period between 1998 and 2004. Design/methodology/approach – The deterministic data envelopment analysis (DEA) as a quantitative approach was used to obtain the efficiency of individual commercial banks in Jordan. Findings – The results of the DEA Charnes, Cooper and Rhodes model show an increase in bank efficiency in the entire period except in 2003 and 2004 where a decrease in bank efficiency was shown for few banks in the sample. The total efficiency scores suggest that the liberalisation programme has provided the anticipated efficiency gains. Most efficiency scores showed consistent increases after the introduction of the policy with the exception of few banks which have responded differently and shown decreased in efficiency. This may be taken to imply that the banks have responded differently to the new system. The analysis further shows that both assets utilisation and the labour factor had an adverse effect on bank efficiency, especially in terms of number of employees. Research limitations/implications – The effect of the Jordanian Government liberalisation programme may not be readily discerned in such a relatively short period of time, which may require that a longer time period elapses before this effect becomes noticeable. Originality/value – The paper analyses the performance of Jordanian banks with regard to their efficiency.