Technical Efficiency of Agriculture Bank of Iran: Application of SFA

This research aims to estimate technical efficiency of agriculture bank and to identify the main determinants of efficiency at this bank. For this purpose, Stochastic Frontier Production Function was used. In this study, both Error Component model of 1992 and technical efficiency effect model (1995) were used. To estimate the models, we used variables such as granted loans and credits, cheap and expensive deposits, labor (number of employees), fixed assets (ac a proxy for capital), and the time to show the technological changes at the level of 36 decision making units (DMU). The results indicate that Technical Efficiency of agriculture Bank (the units) corresponding to Model I and II are 79.57% and 74.97% respectively. In Addition, the results show the existence of positive correlation between the efficiency of DMU and the size of the ir branch network, the share of deposit out of total deposits of the provincial state banks, the granted loans to Agriculture Sector. Finally, a negative relationship has been also witnessed with instability in management, higher share of deposit in total, bad debts and the time.