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How far away is the MENA banking system? Efficiency comparisons with international banks

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  • Chaffai, Mohamed
  • Coccorese, Paolo

Abstract

This paper compares the efficiency of MENA banks with a large group of international banking systems. Using an unbalanced sample including 52 countries over the period 2000–2012, both cost and revenue efficiency are compared. Taking into account the heterogeneity of the technology, we estimate stochastic meta frontier models and identify two important inefficiency components, namely managerial inefficiency and technology inefficiency. Overall, in MENA banks costs could be reduced by 13%, while revenue could be increased by 17% if their banking systems undertake the most advanced banking technologies. We do not find any improvement of this inefficiency over time, but we detect differences in cost inefficiency compared to the banks of the most advanced nations for several cases. The link between managerial efficiency and technology efficiency is also explored by applying Granger causality tests. A bidirectional relationship is evidenced, but the long term impact is in favor of managerial efficiency, which could be the driver to improve technology efficiency in the region, a result conditional on the availability of high qualified human capital in the banking sector.

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  • Chaffai, Mohamed & Coccorese, Paolo, 2019. "How far away is the MENA banking system? Efficiency comparisons with international banks," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 378-395.
    • Handle: RePEc:eee:ecofin:v:49:y:2019:i:c:p:378-395
    DOI: 10.1016/j.najef.2019.04.013
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    2. Hway-Boon Ong & Lee-Lee Chong, 2023. "The effect of cashless payments on the internet and mobile banking," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 28(1), pages 178-188, March.
    3. Chaffai, Mohamed, 2021. "Discernible differences in the building façades, but not in the productivity numbers: A comparison between domestic and foreign banks in North Africa," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 344-357.

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    More about this item

    Keywords

    Banking efficiency; Metafrontier; Stochastic frontier; Output distance function;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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