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The Impact of the Global Financial Crisis on Efficiency and Productivity of the Banking System in South Africa

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  • Andrew Maredza and Sylvanus Ikhide

Abstract

South Africa‘s financial sector is believed to have weathered the contagion and catastrophic effects of the 2008 world wide financial crisis partly on account of a sound regulatory framework and solid macroeconomic policies. In this paper, we seek to measure efficiency and productivity changes during the period of the crisis through an analysis of bank performance over the period 2000 — 2010 using a two stage methodology framework. The recently developed Hicks-Moorsteen total factor productivity (TFP) index approach developed by O‘Donnell (2010a) as opposed to the popular Malmquist TFP was utilised. Our first stage results showed that during the crisis period there was a noticeable but mild deviation of total factor productivity and efficiency measures. Second stage analysis using the censored Tobit model showed that the financial crisis was the main determinant of bank efficiency, indicating that total factor productivity efficiency was 16.96% lower during the crisis period compared to the pre-crisis period.

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Bibliographic Info

Paper provided by Economic Research Southern Africa in its series Working Papers with number 328.

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Length: 25 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:rza:wpaper:328

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Keywords: Bank efficiency; data envelopment analysis; global financial crisis; Hicks-Moorsteen; Malmquist; South African banking; total factor productivity efficiency; censored Tobit model;

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  1. Walter Briec & Kristiaan Kerstens, 2008. "The Hicks-Moorsteen Productivity Index Satisfies the Determinateness Axiom," Working Papers 2008-ECO-10, IESEG School of Management.
  2. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of Financial Institutions: International Survey and Directions for Future Research," Center for Financial Institutions Working Papers 97-05, Wharton School Center for Financial Institutions, University of Pennsylvania.
  3. Sylvanus i. Ikhide, 2008. "Measuring The Operational Efficiency Of Commercial Banks In Namibia," South African Journal of Economics, Economic Society of South Africa, vol. 76(4), pages 586-595, December.
  4. Christopher J. O'Donnell, 2012. "Nonparametric Estimates of the Components of Productivity and Profitability Change in U.S. Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(4), pages 873-890.
  5. Zuzana Iršová & Tomáš Havránek, 2010. "Measuring Bank Efficiency: A Meta-Regression Analysis," Prague Economic Papers, University of Economics, Prague, vol. 2010(4), pages 307-328.
  6. Rebecca S. Demsetz & Philip E. Strahan, 1995. "Diversification, size, and risk at bank holding companies," Research Paper 9506, Federal Reserve Bank of New York.
  7. Fadzlan Sufian, 2010. "The impact of the Asian financial crisis on bank efficiency: The 1997 experience of Malaysia and Thailand," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(7), pages 866-889.
  8. Kupukile Mlambo & Mthuli Ncube, 2011. "Competition and Efficiency in the Banking Sector in South Africa," African Development Review, African Development Bank, vol. 23(1), pages 4-15.
  9. Bjurek, Hans, 1996. " The Malmquist Total Factor Productivity Index," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 303-13, June.
  10. C. Charles Okeahalam, 2006. "Production Efficiency in the South African Banking Sector: A Stochastic Analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(1), pages 103-123.
  11. O'Donnell, Christopher J., 2010. "Measuring and decomposing agricultural productivity and profitability change," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), December.
  12. Simbanegavi, Witness & Greenberg, Josh & Gwatidzo, Tendai, 2012. "Testing for competition in the South African banking sector," MPRA Paper 43627, University Library of Munich, Germany.
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