A DEA Analysis of Bank Performance in Nigeria

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.