Efficiency of Commercial Banks in East Africa: A Non Parametric Approach

Gwahula Raphael

Abstract


This paper employs Data Envelopment analysis (DEA) to estimate the relative efficiency of selected 58
commercial banks operating within the East African Community, namely Tanzania, Kenya, Uganda, Rwanda and
Burundi. From 2008 to 2011. The estimated results shows sharp decline of Technical efficiency from 0.81 (2008)
to 0.56 (2009) there after showing an increasing trend of technical efficiency in 0.73 (2011). Under BCC and
CCR model the number of efficient commercial banks which shows in their four years with the score 1, were
Tanzania (42), Kenya (66), Uganda (61), Rwanda (11) and Burundi (21). The findings show that most
commercial banks in east Africa are operating under a decreasing return to scale. Therefore inefficient utilization
of input resources (technical inefficiency) could be one of the reasons for the inefficiency of commercial banks
in East Africa; therefore banks should make use of underutilized resources and reduce operating expenses to be
relatively efficient in the production frontier.


Full Text: PDF DOI: 10.5539/ijbm.v8n4p50

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International Journal of Business and Management   ISSN 1833-3850 (Print)   ISSN 1833-8119 (Online)

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