Technical and Scale Efficiency of Private Commercial Banks in Ethiopia: Using Data Envelopment Analysis (DEA)
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Date
2019-06
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Addis Ababa University
Abstract
As banks are the main actors in the financial sector of Ethiopia, their efficiency should be measured appropriately. The main objective of this study is to measure technical and scale efficiency of private commercial banks in Ethiopia for 10 years period from 2009 to 2018. The study adopted descriptive research design and quantitative research approach and the study used secondary source of data observes from all 16 private commercial banks annual report and from the National bank of Ethiopia. To measure technical and scale efficiency of the banks, the study used Data Envelopment Analysis method (DEA). Form the period of 10 years under the study only in one year in 2013 from the entire banks 50% of the sample banks fully efficient. The finding of the study revealed that ADIB, AIB, BB, DGB, EB and ZB were 100% efficient banks and OIB is the least efficient bank in resource utilization and WB were scale inefficient from the entire sample banks. The mean efficiency of PCBs for OTE, PTE, and SE is 91%, 92.33% and 98.56% respectively. Also the finding shows that all inefficient banks need improvement in both input variables, for DEPO the banks slacks values is lies between 3.90% and 23.70%, in case of NON-IE the slack value is lies between 2.70% and 23.70%. For NON-II (output variable) only five banks need improvements which are BOA, BUIB, CBO, NIB and UB with a percentage of 16.85%, 9.23%, 11.53%, 19.31% and 18.48% respectively. According to the outcome of the study mostly the cause of overall technical inefficiency is managerial inefficiency (inefficient utilization of resource) rather than scale inefficiency. The researcher recommends that inefficient banks should learn from the efficient banks especially from ZB and ADIB and banks need to giving updated training to their manager’s.
Description
A thesis submitted for the partial fulfillment of the requirements for the degree of master of business administration in finance
Keywords
Data Envelopment Analysis, Scale Efficiency, Technical Efficiency