Bank performance and, in particular, bank efficiency is a frequently debated question in the academic environment due to the extremely important role of banks in the national economy. A wide range of studies are devoted to the exploration of bank efficiency drivers. The goal of the current research is to investigate the relationship between competition and efficiency in the banking sector of new member states of the European Union. Non-parametric frontier technique - Data Envelopment Analysis (DEA) - was used as a tool for measuring bank relative efficiency. Input-oriented DEA model under Variable Returns to Scale assumption was applied. For measuring competition in the banking sector such measures, as Herfindahl-Hirschman Index (HHI) and the share of assets held by the top 5 banks (CR5), were used as proxies. Study was based on the sample data of 97 banks operating in seven New Member States of FiU, covering the period of 2006-2012. Analysis revealed the fact that statistically significant correlation exists between average efficiency and both concentration index and HHI, indicating strong negative relationship between competition and efficiency in the banking sector of NMS.