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A DEA Analysis of Bank Performance in Nigeria

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  • Muhammad, Tanko

Abstract

The recent effort by the Nigerian Central Bank to merge banks, sorely with the aim of increasing shareholders confidence and improved performance, triggered this study. Therefore, the paper measures and decomposes efficiency using the non-parametric approach popularly known as Data Envelopment Analysis (DEA) and productivity growth using Malmquist Productivity index (MPI), in a sample of Nigerian commercial banks over the period of 5 years. Net fixed assets and total deposits were used as the input variables while total loans and advances, other earning assets and net operating income were used as the output variables. Under the Constant Return to Scale assumption, the average efficiency of all the banks over the 5-year period showed a constant improvement. Although the efficiency improvement in the 3rd year seems low, on the average over the years considered the results of all the banks consistently showed improvements. When we considered the variable return to scale we found the efficiency score to still maintain the score significance, although slightly lower in some instances. It is the recommendation of the paper that banks need to do more in terms of maintaining their level of efficiency, especially, when you consider the fact that they have merged with other banks that have somewhat different level of performance and productivity efficiency.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33560.

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Date of creation: 04 Mar 2008
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Handle: RePEc:pra:mprapa:33560

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Keywords: DEA; BANK PERFORMANCE; NIGERIA;

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  1. J. Maudos & J. M. Pastor, 2003. "Cost and profit efficiency in the Spanish banking sector (1985-1996): a non-parametric approach," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(1), pages 1-12.
  2. Drake, Leigh & Hall, Maximilian J. B., 2003. "Efficiency in Japanese banking: An empirical analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 27(5), pages 891-917, May.
  3. Altunbas, Yener & Evans, Lynne & Molyneux, Philip, 2001. "Bank Ownership and Efficiency," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 33(4), pages 926-54, November.
  4. Ferrier, Gary D. & Lovell, C. A. Knox, 1990. "Measuring cost efficiency in banking : Econometric and linear programming evidence," Journal of Econometrics, Elsevier, Elsevier, vol. 46(1-2), pages 229-245.
  5. Casu, Barbara & Girardone, Claudia & Molyneux, Philip, 2004. "Productivity change in European banking: A comparison of parametric and non-parametric approaches," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(10), pages 2521-2540, October.
  6. Haynes, Michelle & Thompson, Steve, 1999. "The productivity effects of bank mergers: Evidence from the UK building societies," Journal of Banking & Finance, Elsevier, Elsevier, vol. 23(5), pages 825-846, May.
  7. Canhoto, Ana & Dermine, Jean, 2003. "A note on banking efficiency in Portugal, New vs. Old banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 27(11), pages 2087-2098, November.
  8. Berg, Sigbjorn Atle & Forsund, Finn R & Jansen, Eilev S, 1992. " Malmquist Indices of Productivity Growth during the Deregulation of Norwegian Banking, 1980-89," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 94(0), pages S211-28, Supplemen.
  9. Mukherjee, Kankana & Ray, Subhash C. & Miller, Stephen M., 2001. "Productivity growth in large US commercial banks: The initial post-deregulation experience," Journal of Banking & Finance, Elsevier, Elsevier, vol. 25(5), pages 913-939, May.
  10. Sherman, H. David & Gold, Franklin, 1985. "Bank branch operating efficiency : Evaluation with Data Envelopment Analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 9(2), pages 297-315, June.
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