2.1.3. Operational E fficiency

Traditionally, the operational e fficiency for the bank sector is measured by using the cost-to-income ratio (CIR), and a higher CIR reflects more cost ine fficiency. To increase profitability, it is necessary to increase the e fficiency of the financial institution managemen<sup>t</sup> (Athanasoglou et al. 2008; Dietrich and Wanzenried 2011), that is, the reduction of operational costs (administrative expenses, salaries of employees, property costs) and, at the same time, to increase revenues, that could lead to a high level of bank profitability. Therefore, this ratio is usually negatively related to profitability, see, for example, Azam and Siddiqui (2012); Dietrich and Wanzenried (2011); García-Herrero et al. (2009); Garcia and Guerreiro (2016); Guru et al. (2002); Pasiouras and Kosmidou (2007), among others.

Based on this assumption, the following hypothesis is considered:

**Hypothesis 3.** *There is a positive association between the operational e*ffi*ciency of a bank and its performance.*
