Financial Efficiency Essay
Bank plays a vital role in economic growth of a country. The bank should not only be profitable but also efficient. The efficiency of a bank can affect the development process of country. Thus, efficient and effective utilization of resources are main goal of every banker.
Efficiency defines as the ability of a firm to turn the resources into revenue. Efficiency larger depends on how the firm deploy human resource, capital, technology used and regulation policy. In order to achieve high efficient operating, the bank should use the least resource to generate the most revenue through a prudent resources allocation.
Due to liberalization of the financial sector, the banking system evolves globalization. Furthermore, foreign bank is allowed to place their branches in other country. These factors cause the competition in
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The study shows standard profit efficiency can take better consider of cost inefficiency because it find out the differences between the best practices points of profit maximization but the cost efficiency just evaluates the performance and keeps the output constant at the same level. However, alternative profit efficiency evaluates the ability of profits earning given its output levels. It provides more accurate result even in some imperfect assumption condition.
In addition, we explore some method that can be used to measure the efficiency of financial institution such as estimation techniques, the treatment of output quality, and the role of financial capital. The differences in product quality will be mistakenly measured as the differences in cost inefficiency, thus treatment of the output quality intent to control the quality of the bank output when comparing the bank efficiency. Moreover, he financial capital of the bank should be reviewed properly when studying efficiency as the insolvency risk will affect the profit and
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