Measuring Banks Efficiency through Using Stochastic Cost Frontier Model: Algerian Banks as a Study Case in the Period of 2004-2008 A.D.

Abstract

The prevalence of globalization phenomenon had far- reaching effects

on various economic activities، as a lot of challenges especially to Banking

activities. So a strong banking system capable of mobilizing and allocating

financial resources efficiently to serve the development objectives and reduce

risks becomes urgent، This study is trying to measure Algerian bank efficiency،

by use the quantitative approach of stochastic cost frontier model to estimate

the translog cost function of a sample of banks during the period (2004- 2008)

to measure the elasticities of substitution and input price elasticities and the

scale and scope efficiency in those banks.

This study concluded that Algerian Banks have substitutability between

production elements، however، those banks can’t dominate their costs، that had

led to a failure in their scale economies that hinders the it ability to expand

in future it is found that those banks have a scope economies of varying their

products. Moreover، the study concluded that the five public banks are less

profitable than Algerian Baraka Bank.