Evaluating Efficiency of Personnel in Nepalese Commercial Banks

The failure of large and reputable banks is creating a potential threat to depositors’ hard-earned money deposited in commercial banks (CBs). Therefore, evaluation of the risk-adjusted efficiency of CBs is crucial. This study evaluates the relative efficiency of CBs personnel with an unbalanced panel dataset of 21 Nepalese CBs based on their remunerations, financial performances, and risky behaviors using data envelopment analysis, the Malmquist productivity index, and simple regression analysis. In the first step analysis, various financial ratios regarding the firm performance were considered. In the second step analysis, efficiency scores estimated in the first step analysis were adjusted by risk variables. The study shows that relatively large banks were exploiting personnel expenses, but smaller-sized banks, recently established banks, and banks with fewer branches gained more efficiency from their size. Personnel efficiency had a positive influence on the market price of stock, but it also increased the volatility of stock prices. Negative growth of both productivity indices (i.e., with and without risk adjustment) suggests poor agency services delivered by personnel and decreasing healthy conduct of Nepalese CBs.