Data in
Table 1 revealed that the least efficient banks have a cost efficiency index of
.71 while the most efficient banks have .94 which indicates that most efficient
banks generated more earnings for every $1 USD has been spent compared with the
least efficient banks.

For the adjusted
return on average assets, the most efficient banks revealed to have a double
ratio of 2.31 compared with the least efficient bank.

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Another two
traditional ratios were used that indicated the similar patterns which are
non-interest costs and return on average assets relative to average assets,
ratios show that the most efficient banks have lowered overhead costs compared
to the least efficient banks by 1.11 percent, while their return on average
assets is twice the least efficient banks. All these ratios that measure
performance indicate that banks with most and least efficiency have a
significant difference in their ability to utilize resources and generate

Financial perspective
in determining banking efficiency

Comparing main
sources of income, expenses, and components of the balance sheet are the initial
step in analyzing efficient and inefficient banks.

As shown in
(e.g., table 1) there’s a number of dissimilarities between efficient and
inefficient banks, although there are also similar in several aspects. The
analysis suggests that there were some differences in the way that efficient
and inefficient banks in generating income. Ratios of earnings show that the
most efficient banks have a greater percent of interest earned by 40 basis
point compared with the least one. On the other hand, there was a higher
non-interest income for the least efficient banks.

On the
expense side, both categories incur almost identical interest expenses. Assuming
all factors are equal this implies that the efficient banks have no extraordinary
feature in funding cost, they are accomplishing their performance through
different means.

As observed
from Table 2 that most efficient banks are exceptionally viable in controlling
expenses, figures show that their salaries and benefits expenses as a percent
of total assets are less by 20% compared with the inefficient banks. Different
expenses components are also way smaller for the efficient banks, which
indicate that these banks are implementing a notable effort at controlling
costs across all of their operations.

These income
variances, as well as expense variances, are all a critical from a statistical
point of view.

banks hold assets that differ from inefficient banks in several ways. First,
efficient banks hold fewer securities and are way more active lenders, as a
percentage of total assets, loans at efficient banks is greater than
inefficient banks by eight points.

difference results, partly incurred from performing a profitability test that separated
these banks into two categories, but also suggests that efficient banks have
lowered cost structure no due to involving in activities with low resource
requirement, like holding securities. Alternatively, efficient banks engage
more heavily in activities that need the most resources, thereby demonstrating
that they must be far better in utilizing their banking inputs.

A final
significant portfolio characteristic of efficient banks is that their
investment in fixed assets and premises are less by 60 percent compared to the
least efficient banks.

banks revealed to have a slightly higher level of transaction accounts and
lower levels of other kinds of deposits. This indicates that the orientation of
efficient banks is providing more payment services and transactions to their
customers than their counterparts.

Capital held
by efficient banks is greater by 2.68 percent from inefficient banks. High
capital explains the superior performance and the support of a stockholder,
another thing that it also provides a high level of security to their

The figure
of the two categories has similar levels of net loan losses, whereas
inefficient banks have higher noncurrent assets.

Briefly, the
statistics of this study border the main distinctions between the most and the
least efficient banks that are in the submitted effort by bank management and
staff in generating income and controlling costs.

Fixed costs, salary costs, and non-interest
expense are all essentially lower at the most efficient banks are making
considerable efforts to control each major component of cost. Moreover,
accomplishing this record, most efficient banks 


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