The application of data envelopment analysis in conjunction with financial ratios for bank performance evaluation

While financial ratios are currently the method most often used to evaluate a bank’s performance, there is no clear-cut rationale which would allow one to acquire a composite score on the overall financial soundness of a bank. This paper demonstrates the application of DEA (Data Envelopment Analysis) in conjunction with financial ratios to help bank regulators in Taiwan not only to distinguish the efficient banks from the inefficient ones but also to gain insight into various financial dimensions that somehow link to the bank’s financial operational decisions.