The Structure and Efficiency of Ethiopian Commercial bank
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Date
2006-12
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A.A.U
Abstract
Using the stochastic frontier analysis and employing the cost, standard profit, alternative profit
and labor efficiency concepts, this study has analyzed the efficiency situations and identified
the exogenous factors affecting the inefficiencies of the Ethiopian commercial banks from
1994/95 to 2004/05. FUl1hermore, the study has investigated whether or not management
inefficiency existed in the banks and the quality difference in the outputs of the banks. The
findings also depicts that Ethiopian commercial banks have on the average cost, standard profit
alternative profit and labor efficiency scores of 92.2, 68, 71.3 and 80.3 percent respectively.
However, the econometric findings suggest that the alternative profit efficiency concept to be
the most appropriate efficiency concept to assess the Ethiopian commercial banking industry.
In view of this, the study indicates that alternative profit efficiency is affected positively by the
private ownership, cheap source of deposit, larger size, higher capital size, lower risk
preference of the management, longer years of operation and lower number of branches even
though it deteriorated over the study period. In addition, the findings also reveal the existence
of management inefficiency and output quality difference among the banks.
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Keywords
Ethiopian Commercial bank, Structure and Efficiency