The subject of this paper is to measure the efficiency of the Macedonian
banking sector by applying two approaches: firstly, comparative analysis on the
efficiency indicators of the banking sector in the Republic of Macedonia and the
countries of Central and Southeastern Europe (CSEE) and secondly, Data Envelopment
Analysis (DEA). The aim is to provide directions and guidelines for further strengthening
of the Macedonian banking sector. According to the comparative analysis of the
efficiency indicators (net interest margin and operating costs) of the Macedonian banking
sector and the countries of CSEE, the countries whose banking sector shows lower
operating costs are characterized with a higher level of financial deepening and greater
degree of financial intermediation. The high interest margins direct towards unsuitable
allocation of financial resources and insufficient competitiveness in the domestic banking
sector. When applying the DEA approach, it can be stated that the group of large banks
marks the highest efficiency within the Macedonian banking sector. The high
concentration degree of banking activities within the group of large banks with a leading
role in determining the interest rates, results in a rigid interest policy of the banks. In the
direction of strengthening the efficiency of the Macedonian banking sector as a whole,
the obtained results show that it is necessary for the banks to be further consolidated so as
to utilize the advantages of the economies of scale, increase competitiveness, offer a
diversified structure of products, invest in new contemporary software solutions that will
allow reinforcement of their employees’ productivity and long-term reduction of the
operating costs, as well.
