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A DEA Analysis of Bank Performance in Nigeria


  • Muhammad, Tanko


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.

Suggested Citation

  • Muhammad, Tanko, 2008. "A DEA Analysis of Bank Performance in Nigeria," MPRA Paper 33560, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:33560

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    References listed on IDEAS

    1. Haynes, Michelle & Thompson, Steve, 1999. "The productivity effects of bank mergers: Evidence from the UK building societies," Journal of Banking & Finance, Elsevier, vol. 23(5), pages 825-846, May.
    2. Canhoto, Ana & Dermine, Jean, 2003. "A note on banking efficiency in Portugal, New vs. Old banks," Journal of Banking & Finance, Elsevier, vol. 27(11), pages 2087-2098, November.
    3. Ferrier, Gary D. & Lovell, C. A. Knox, 1990. "Measuring cost efficiency in banking : Econometric and linear programming evidence," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 229-245.
    4. 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, vol. 94(0), pages 211-228, Supplemen.
    5. Drake, Leigh & Hall, Maximilian J. B., 2003. "Efficiency in Japanese banking: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 891-917, May.
    6. 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, vol. 28(10), pages 2521-2540, October.
    7. 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, vol. 25(5), pages 913-939, May.
    8. Altunbas, Yener & Evans, Lynne & Molyneux, Philip, 2001. "Bank Ownership and Efficiency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 926-954, November.
    9. Sherman, H. David & Gold, Franklin, 1985. "Bank branch operating efficiency : Evaluation with Data Envelopment Analysis," Journal of Banking & Finance, Elsevier, vol. 9(2), pages 297-315, June.
    10. 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, vol. 13(1), pages 1-12.
    11. Favero, Carlo A., 2001. "Applied Macroeconometrics," OUP Catalogue, Oxford University Press, number 9780198296850.
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    Cited by:

    1. Usman Owolabi Akeem & Fadipe Moses, 2014. "An Empirical Analysis of Allocative Efficiency of Nigerian CommercialBanks: A DEA Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 4(3), pages 465-475.
    2. Kryklii, Olena & Pavlenko, Ludmila & Podvihin, Sergei, 2013. "Cost-effectiveness analysis of Ukrainian banks using the DEA method," MPRA Paper 60481, University Library of Munich, Germany.

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    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G3 - Financial Economics - - Corporate Finance and Governance


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