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Technical efficiency in Botswana’s financial institutions: a DEA approach

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Abstract

This paper examines technical and pure technical efficiencies of ten major financial institutions in Botswana for each year during the period 2001-2006 using data envelopment analysis. In order to obtain more robust and reliable results, the sensitivity of our efficiency indices were put into test by choosing three alternative approaches in specifying the mix of inputs and outputs. The empirical results indicate that: (a) no matter which approach and year are taken into consideration, Baroda and FNB (which are both foreign banks) and BSB (which is a publicly owned institution) are consistently among the most efficient institutions and BDC, ABC and NDB are the least efficient ones; (b) the most efficient banks are either small or large institutions in terms of their asset sizes; (c) due to the small sample size, the evidence of a relationship between the age of institutions and their technical efficiencies remains inconclusive. One can conclude that financial institutions can further enhance efficiency by adopting self-service technologies such as telephone and internet banking which can substantially reduce their service delivery costs.

Suggested Citation

  • Moffat, Boitnmelo & Valadkhani, Abbas, 2008. "Technical efficiency in Botswana’s financial institutions: a DEA approach," Economics Working Papers wp08-14, School of Economics, University of Wollongong, NSW, Australia.
  • Handle: RePEc:uow:depec1:wp08-14
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    File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow052304.pdf
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    Keywords

    Botswana; Technical efficiency; Data envelopment analysis; financial institutions.;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G2 - Financial Economics - - Financial Institutions and Services

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