EVALUATING THE OPERATING EFFICIENCY OF COMMERCIAL BANKING SECTOR IN LAO PDR

Abstract

The objective of this research is to study the bank operating efficiency and the factors determine to the bank operating efficiency in Lao PDR.  The Data Envelopment Analysis (DEA) method framework is computed to compare efficiency between private and foreign banks, which constantly operating under the years of 2013 to 2017. We classify input and output variables into 3 different approaches, namely intermediation, value-added and operating approaches. The empirical result exhibit the foreign banks are higher efficiency relative to private banks under intermediation and operating activities. On the other hands, private bank is more efficiency under value-added function compared with foreign banks. For the regression analysis, we employ the Ordinary Least Squares (OLS) model framework to analyse the determinants of bank efficiency under three approaches, by applying the internal (bank specifies) and external (macroeconomics) variables and device into 9 regression models. The result found the mixed relationship between capital strength and commercial banks in Lao PDR under three approaches, while the expenses are found the negative significant under intermediation and value-added approach.