The performance analysis of Azerbaijan bank system: Data Envelopment Analysis method application

The banking system, which has the ability to transform the savings collected in the financial system into capital, is the most important link of the financial system in Azerbaijan with its financial intermediation dimension and plays a strategic role in maintaining the economic system in an effective and durable manner. As a matter of fact, the performance of the banking system is a factor that comes to the fore in terms of its strength and robustness in today's competitive intensity that develops in parallel with technological advances, and it is also of vital importance in terms of helping economic growth and reducing the risk of financial crisis. Azerbaijan Banking System (ABS) has experienced certain fluctuations especially with the effect of external factors in the period covering 2008-2017 and has undergone a comprehensive rehabilitation process accordingly. The main purpose of this study is to determine to what extent (how effectively) they use their resources (inputs) in the process of obtaining the desired goods and services (outputs), taking into account the characteristics of the banks in ABS, and accordingly, to determine the sustainable growth of banksnevaluation of their performance in the process of implementing their policies. For this purpose, efficiency and productivity analyzes were made in this study. In the first part of the study, information about the conceptual and historical development has been given, and the current position of ABS has been tried to be determined by emphasizing the economic developments in the world and in Azerbaijan in the recent past, the crisis and the financial system structures implemented to achieve the economic targets. In the second part, the structural features of ABS and the general situation of today's Azerbaijan banking system in terms of performance are examined. In the last part, various efficiency measures were estimated using Data Envelopment Analysis, which is a non-parametric approach, for the period covering the years 2008-2017. The Malmquist Index was used to evaluate the Total Factor Efficiency. In addition, the effect of bank-specific factors on the efficiency of banks was examined by using Panel Data and Panel Logit models in the study. According to the results of the study, no significant efficiency gain could be obtained in technique, pure technique and scale activities during the review period. According to the other results of the study, the main source of technical ineffectiveness in ABS was scale ineffectiveness rather than pure technical ineffectiveness; Most of the banks included in the analysis were found to have scale inefficiency due to diminishing returns to scale. However, the efficiency of banks differed according to ownership structure and scale. In addition, during the period covered within the scope of the study, an increase in productivity was achieved due to technological progress rather than an increase in efficiency; In the long and short run, return on assets (ROA) and return on equity (ROE) ratios have a negative and significant effect arising from internal determinants (liquidity risk, capital adequacy ratio, asset size and price of labor).