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Efficiency of Commercial Banks in Sub-Saharan Africa: A Comparative Analysis of Domestic and Foreign Banks

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  • Kiyota, Hiroyuki
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    Abstract

    Utilizing the stochastic frontier approach, this study conducts a comparative analysis of profit efficiency and cost inefficiency of commercial banks operating in 29 sub-Saharan African (SSA) countries by bank ownership (domestic bank, SSA foreign bank or non-SSA foreign bank), as well as by the bank size during 2000-07. Tobit regressions are employed to assess the impact of environmental factors on the efficiency of commercial banks. The key findings of this empirical analysis suggest that foreign banks tend to outperform domestic banks in terms of profit efficiency. In terms of efficiency by bank size, the smaller the bank, the more profit efficient the bank will be; medium or relatively large banks tend to be the most cost efficient.

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    File URL: http://www.wider.unu.edu/stc/repec/pdfs/wp2011/wp2011-058.pdf
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    Bibliographic Info

    Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Papers with number UNU-WIDER Research Paper WP2011/58.

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    Length: 38
    Date of creation: 2011
    Date of revision:
    Handle: RePEc:unu:wpaper:wp2011-58

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    Keywords: banking; stochastic frontier; Tobit regression; Africa;

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    1. Neeltje van Horen & Stijn Claessens, 2009. "Being a Foreigner Among Domestic Banks: Asset or Liability?," IMF Working Papers 09/273, International Monetary Fund.
    2. Francisco F. Vázquez & Carmen Reinhart & Marco Arena, 2007. "The Lending Channel in Emerging Economies: Are Foreign Banks Different?," IMF Working Papers 07/48, International Monetary Fund.
    3. Stephen Miller & Athanasios Noulas, 1997. "Portfolio mix and large-bank profitability in the USA," Applied Economics, Taylor and Francis Journals, vol. 29(4), pages 505-512.
    4. Sufian, Fadzlan, 2009. "Determinants of bank efficiency during unstable macroeconomic environment: Empirical evidence from Malaysia," Research in International Business and Finance, Elsevier, vol. 23(1), pages 54-77, January.
    5. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    6. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
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