Integrating analytic network process and data envelopment analysis for efficiency measurement of Turkish commercial banks

The purpose of this paper is to provide a two-stage multicriteria approach integrating analytic network process (ANP) and data envelopment analysis (DEA) for financial performance evaluation of banks. In the first stage ANP is used and the weights of the criteria for banks’ financial performance evaluation are derived. In the second stage data for the criteria, which are the outputs of DEA, have been used to calculate the relative efficiency scores of the banks. The weights obtained in the first stage have been used to construct the assurance region (AR) constraints for the output weights. In order to show the applicability and usefulness of this approach it is applied to the financial performance measurement of 21 Turkish commercial banks. The aim of the application is to determine the relative efficiency scores with and without the weight restrictions and compare the ranking of decision making units (DMUs), in this case the commercial banks. The findings showed that ranking of banks differ and the discriminatory power of DEA model increases with the weight restrictions imposed on the output weights. The ANP-DEA integrated approach provides a methodology for decision makers and/or policy makers to incorporate managerial judgments and preferences into the efficiency measurement framework in which a nonparametric commonly used method, DEA, is employed. There is a lack of research in the literature utilizing ANP in the performance measurement of financial institutions and also integrating ANP with DEA in banking. This study allows the decision makers to evaluate the efficiency of banks, which have a great role in the economy of any country, to rank the banks and also include their preferences in the evaluation process.