Analysis of the Efficiency of Interest Free Banking Windows at Districts Level: the Case of Dashen Bank Sc
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Date
2024-06-28
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A.A.U
Abstract
This study evaluates the efficiency of Dashen Bank's District-level Interest-Free banking operations from July 2018 to June 2023 using the DEA-based Malmquist Productivity Index and a one-step system GMM dynamic data approach. Covering all 12 Districts, the research identifies trends in productivity, emphasizing the intermediary function of banks. The analysis, based on constant returns to scale, compares efficiency and productivity to establish performance benchmarks. Input variables included personnel expenses, operating expenses, and total deposits, while output variables comprised income from financing, advances and investments, service charges, and commissions. Findings indicate a modest average annual efficiency improvement of 0.2%, with significant disparities among Districts. Dire Dawa District led with a 0.6% improvement, while Adama District recorded the lowest efficiency. In terms of total factor productivity (TFP), West Addis Ababa District showed the highest positive change at 17.2%, whereas Adama District had the most significant decline at 20.9%. The study highlights the substantial impact of technological advancements on overall productivity. Districts leading in productivity, such as West Addis Ababa, Wolaita, and South Addis Ababa, demonstrated notable technological improvements of 17.2%, 15.6%, and 15.0%, respectively. The study also revealed that deposit and income growth positively influence district efficiency, while expense growth has a negative but insignificant impact. Strategic recommendations include continuous technology investment, operational efficiency enhancements, scale optimization, baseline efficiency standards, regular performance monitoring, staff development, strategic partnerships, enhanced deposit mobilization, revenue-generating activities, continuous improvement programs, and potential district reorganization to address disparities.