DEA application at cross-country benchmarking: Latvian vs. Lithuanian banking sector

Abstract

The present paper aims to make cross country analysis in banking sector. The relative efficiency of Latvian and Lithuanian banks is estimated, using non-parametric frontier technique Data Envelopment Analysis (DEA). Input-oriented DEA model under the assumption of variable returns to scale (VRS) is applied. The choice of variables is based on the intermediation and production approaches. Pre- and post-crisis periods of time are used to test the hypothesis about the relationship between bank size and efficiency scores. Besides, the yielded results are compared with traditional performance evaluation ratios, calculated for the whole banking sector of both countries for different periods. The research contributes to the existing analytical data on bank performance in new member states of the European Union.