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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

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.

Suggested Citation

  • Kiyota, Hiroyuki, 2011. "Efficiency of Commercial Banks in Sub-Saharan Africa: A Comparative Analysis of Domestic and Foreign Banks," WIDER Working Paper Series 058, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:wp2011-58
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Ioannis Tokatlidis, 2003. "Financial Liberalisation: The African Experience," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(Supplemen), pages 53-88, September.
    2. Claessens, Stijn & van Horen, Neeltje, 2012. "Being a foreigner among domestic banks: Asset or liability?," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1276-1290.
    3. Marco Arena & Carmen Reinhart & Francisco Vázquez, 2006. "The Lending Channel in Emerging Economics: Are Foreign Banks Different?," NBER Working Papers 12340, National Bureau of Economic Research, Inc.
    4. Stephen Miller & Athanasios Noulas, 1997. "Portfolio mix and large-bank profitability in the USA," Applied Economics, Taylor & Francis Journals, vol. 29(4), pages 505-512.
    5. 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.
    6. 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.
    7. 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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    Keywords

    banking; stochastic frontier; Tobit regression; Africa;

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