Abstract
Data Envelopment Analysis-Assurance Region(DEA-AR) model is used in this paper to investigate the efficiency and performance potential of Korean banks as they engage in activities that incur interest and non-interest expenses and produce income. DEA provides a measure of each bank's relation to the best-practice frontier for its competitors. This can provide a better quality-benchmark than using industry averages or a particular peer bank branches as the benchmark. The banks are classified into efficient and inefficient sets. Multiplier values for AR-inefficient banks with unique slacks indicate the potential for management to improve the bank's performance relative to its peers. DEA-AR that provide economically reasonable bounds for the multipliers lead to profitability potential, as distinct from efficiency, results.
